REGULATION OF ONLINE DISPUTE RESOLUTION:

BETWEEN LAW AND TECHNOLOGY

RAFAL MOREK

(rafalmorek@uw.edu.pl)

AUGUST 2005

I. Introduction....................................................................................................................3

II. The Theory and Practice of Dispute Resolution in the Digital Age.......................5

What is ODR?..................................................................................................................5

A brief history of ODR....................................................................................................9

The theoretical framework.............................................................................................12

ODR in the context of other dispute resolution mechanisms........................................14

Disadvantages and Advantages of ODR........................................................................17

Building Future Dispute Resolution Systems Online....................................................26

III. The Four Modalities of Regulation..........................................................................30

Law................................................................................................................................30

Norms............................................................................................................................35

Market............................................................................................................................40

Technology....................................................................................................................50

IV. Implications: Present Realities, Pressing Problems and Future Prospects.........60

The current state of the regulatory framework for online dispute resolution................60

Major deficiencies of the current ODR regulatory framework.....................................63

Policy Options...............................................................................................................70

V. Conclusion..................................................................................................................76

Bibliography.....................................................................................................................77

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I. INTRODUCTION

With the rapid development of the Internet and electronic commerce, dispute

resolution mechanisms are needed to help resolve disputes between parties located

anywhere in the world in a manner that is fair, expeditious and cost effective. Online

dispute resolution (ODR) has been labelled “a logical and natural step” for the resolution

of disputes that arise on the Internet.

This paper presents the ODR phenomenon with a specific focus on policy-making

and regulatory problems. It argues that the current regulatory framework for online

dispute resolution is, to a large extent, defective. Existing deficiencies result not only

from a lack of comprehensive ODR law, but also from the weaknesses of the other

modalities of regulation: market, norms and technology. Arguably, the current “hands-

off” approach to regulating ODR has been unsuccessful, and it is time to re-examine that

position.

Part II of the paper presents online dispute resolution in a broad context including

its history, theoretical framework, and advantages and disadvantages. Part III examines

four modalities of regulation: law, norms, market and technology (architecture).1 While

the regulatory framework for resolving disputes on the Internet is partly provided by both

national laws and international agreements, a significant role might be played by other

agents: norms such as standards, guidelines, or codes of conduct; market forces related to

a global market for ODR services and electronic commerce, and technology which is

sometimes called the “fourth party in dispute resolution.”2 The paper continues with Part

IV, which analyzes the current state of the regulatory framework for online dispute

resolution in more detail. Although it shows major deficiencies of current regulation and

proposes some policy solutions, offering a detailed optimal regulatory model for ODR is

beyond the scope and ambition of this paper. Its goal is rather to present changing

1 The same criteria have been applied by several authors in different contexts. Most recently, Lawrence Lessig in his “Free culture” analyzed them with respect to the current copyright law regime in the United States (See: Lawrence Lessig, Free culture (The Penguin Press: New York, 2004) at 121 [Lessig]). The aim of this paper is to consider how those agents work in the context of online dispute resolution mechanisms. 2 Ethan Katsh and Janet Rifkin, Online Dispute Resolution: Resolving Conflicts in Cyberspace (Jossey-Bass, San Francisco, 2001) at 91 [Katsh and Rifkin].

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dynamics and complexity of the ODR phenomenon that must be taken into account when

drafting any regulatory scheme.

The question of whether or not ODR can be effectively developed in the current

regulatory framework, and which changes are needed, remains open to debate. Albeit in a

small way, I hope this paper will enrich this debate.

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II. THE THEORY AND PRACTICE OF DISPUTE RESOLUTION

IN THE DIGITAL AGE

What is ODR?

The phenomenon known as online dispute resolution relates, to put it simply, to

resolving disputes on the Internet. It is happening in many forms and forums across

Canada, the United States, Europe and other countries. Today’s ODR mechanisms are

said to be early harbingers of the future global dispute resolution landscape in the Digital

Age.3

The term ODR refers to an array of dispute resolution procedures. Some are fully

automated, others, although they take place exclusively online, involve a human neutral.

A large group of processes that are included in ODR use digital technologies to lesser

degrees. Thus, online dispute resolution is not a monolithic concept – for this reason,

some authors argue that it is more accurate not to speak of ODR, but rather of ODR

techniques4, or even of “a plethora of online dispute resolution services”5 devoted to the

expeditious and speedy resolution of disputes. The term ODR is used for mechanisms as

different as dispute prevention (education, outreach, rating and feedback programs),

ombudsman programs, blind bidding, automated negotiation, early neutral evaluation and

assessment, mediation/conciliation, mediation-arbitration (binding and/or non-binding),

arbitration, expert determination, “executive tribunals” or “virtual juries”. Based largely

on traditional (offline) alternative dispute resolution6 procedures, such as mediation or

3 Many authors have suggested that the spectrum of dispute resolution mechanisms will soon encompass a full range of “virtual” options made possible by the current revolution in information technology – see for instance: Thomas J. Stipanowich, “Contract and Conflict Management” (2001) Wis. L. Rev. 831.4 Julia Hörnle, “Online Dispute Resolution – The Emperor’s New Clothes? Benefits and Pitfalls of Online Dispute Resolution and its Application to Commercial Arbitration”, online: <http://www.bileta.ac.uk/02papers/Hörnle.html> [Hörnle].5 Leon E. Trakman, “From the Medieval Law Merchant to E-Merchant Law” (2003) 53 U. Toronto L.J. 265 at 284.6 The main forms of alternative dispute resolution (ADR) are arbitration, mediation and negotiation, processes that are effective in settling disputes out of court and in a manner that is less formal than litigation in court. Some authors exclude arbitration from ADR though, emphasizing amicable (conciliatory) nature of ADR, as opposed to adjudicative procedures, such as litigation or arbitration.

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arbitration, and various hybrids thereof, ODR is sometimes equivalently labelled as e-

ADR.7 The synergy of alternative dispute resolution and information and communication

technology via the Internet is considered a dominant feature of ODR as canvassed in

legal literature.

The field of out-of-court dispute resolution has grown and flourished alongside

the rapid advance of technology for almost thirty years. Yet, a successful relationship

between ADR and technology could not have happened without the appearance of the

commercial Internet and World Wide Web a decade ago. Since then, one of the main

challenges facing the global network is how to resolve a growing number of cross-border

disputes in the electronic environment. Diverse legal and non-legal obstacles such as

physical, linguistic and cultural distances between parties, juridical difficulties

concerning the applicable law, competent jurisdiction and enforcement of judgments

make traditional methods of dispute resolution ineffective in the online environment. It

has been argued that these deficiencies may significantly hamper further development of

the Internet and electronic commerce. Although not free from similar and other concerns,

ODR is being depicted as the potentially optimal method to resolve disputes arising on

the Internet.

7 As indicated by Schiavetta, “whilst the terms ODR and e-ADR have been and can be used synonymously it is more accurate to make a distinction” – Susan Schiavetta, “The Relationship Between e-ADR and Article 6 of the European Convention of Human Rights pursuant to the Case Law of the European Court of Human Rights” 2004 (1) The Journal of Information, Law and Technology (JILT) [Schiavetta]. Some other authors have argued that because ADR systems almost always integrate some form of ICT (from using the telephone, fax machine or word processor, to sending information on meeting times via e-mail or posting payment forms online), we face an ADR/ODR continuum rather than a set of distinguishable categories of dispute resolution mechanisms:

ADR / ODR CONTINUUMADR with basic electronic feature, such as e-mail communication or electronic submissionsADR with versatile Internets features, such as tele- or videoconferencesODR conducted entirely over the Internet, no face to face interactions

Whether a distinction should be made between proceedings exclusively conducted online (represented on the right side of the chart) and proceedings “only” supported by different elements of ICT technology is disputable. According to Hörnle, there is no such clear-cut distinction and ODR remains “a matter of degree” – it must be localized on a broad spectrum of dispute resolution mechanisms, with at the one end proceedings using hardly any online technology and at the other end proceedings heavily relying on online technology (Hörnle, supra note Error: Reference source not found). Rule has argued that in the future the distinction between ADR and ODR will become even more blurry, as the technological solutions are refined and practitioners become more aware of ODR techniques it will become more integrated – Colin Rule, Online Dispute Resolution for Business: B2B, Ecommerce, Consumer, Employment, Insurance, and Other Commercial Conflicts (Jossey-Bass, San Francisco, September 2002) at 301 [Rule].

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At the commonsense level, as several authors argue, if the Internet gives rise to

some disputes, it seems appropriate to employ the same medium to deal with them.8

Given that parties physically located far from each other can easily “meet” and

communicate in cyberspace, they can both cause and resolve a dispute in cyberspace. In

addition, ODR can be more effective than traditional methods in terms of time,

convenience and financial resources involved in dispute resolution procedure.9 Thus, in

Katsh and Rifkin’s view, online dispute resolution is “a response” to the dispute and

other activities that are appearing online, and also “a user” of resources becoming

available in cyberspace. Its nature, therefore, reflects various qualities and features of the

online environment10.

ODR has qualities acquired from the online environment, but it also has traits

acquired from ADR. ODR has the same potential advantages over litigation of greater

efficiency, greater party control and lower costs.11 It is fair to say that ODR grows

directly out of the history of offline ADR – as observed by Rule – “in its earliest

incarnations” online dispute resolution procedures were unchanged ADR procedures

conducted online.12 The first three pilot projects launched to develop workable dispute

resolution techniques online (the Virtual Magistrate, the Online Ombuds Office and the

Maryland Mediation Project) were based on arbitration, mediation and complaint

assistance techniques.13 For that reason, in the opinion of some authors, the ODR

phenomenon relates simply to using the Internet to provide ADR, whether as an adjunct

to face-to-face services or in substitution of them.14 Consequently, they define ODR as

“ADR that takes place using computer-mediated communications in the online

8 Hörnle wrote that it is “logical” to use the same medium for the resolution of disputes arisen in online settings – Hörnle, supra note Error: Reference source not found9 ODR is particularly convenient and efficient where the parties are located at a distance, as distance communication obviates the need for travelling. Part II explains the advantages of ODR in more detail.10 Katsh and Rifkin, supra note Error: Reference source not found at 19.11 Hörnle pointed out that the introduction of high technology increases these advantages of ADR over litigation – Hörnle, supra note Error: Reference source not found.12 Rule, supra note Error: Reference source not found at 13.13 Schiavetta, supra note Error: Reference source not found.14 Anne-Marie G. Hammond, “The Effectiveness of Online Dispute Resolution”, thesis completed for Royal Roads University MA (Conflict Analysis and Management), available from author hammond00@earthlink.net or in the National Library of Canada.

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environment”.15 They also indicate that most laws and principles that apply to ADR in the

brick-and-mortar regime will also apply to e-commerce and other Internet disputes. Yet,

although ODR is an “offspring of ADR”16, it must be pointed out that with the

development of online technology “a new dimension has been added to the dispute

resolution industry.”17 Some ODR procedures, like automated negotiation18 or facilitated

negotiation19, do not have exact offline equivalents. At this point, the conclusion reached

by Hörnle seems accurate: “In one sense, ODR is simply about the use of new tools –

information management tools and communication tools – for dispute resolution. But it is

equally true that these tools change the methods by which disputes are being solved.

ODR introduces a new paradigm of dispute resolution.”20

The growing consensus believes that online dispute resolution can be useful for

two types of disputes: those that arise from online interactions and those that arise

offline.21 Initially, the focus of ODR stakeholders was largely on consumer disputes

resulting from e-commerce transactions. This continues to be an important area for ODR,

but it has been joined by a growing number of disputing contexts. The chart below

illustrates the wide range of fields in which different services have been offered by ODR

providers.

15 United Nations Conference on Trade and Development, “E-Commerce And Development Report 2003 (Internet edition prepared by the UNCTAD secretariat): Chapter 7: Online dispute resolution: E-commerce and beyond”, online: <http://www.unctad.org> [UNCTAD].16 Hörnle, supra note Error: Reference source not found.17 Schiavetta, supra note Error: Reference source not found.18 With automated negotiation the disputants use a software programme to settle their monetary dispute. Firstly they enter settlement figures and once the amounts come within certain proximity of each other, say twenty per cent, the claim is settled midpoint.19 The disputants are provided with a web platform and ICT tools for the purpose of facilitating a resolution. 20 Hörnle, supra note Error: Reference source not found. The relation between two fields, which ODR has grown out of, i.e. online (ICT) technology and alternative dispute resolution movement, is far more complex than it could appear prima facie. ADR and ICT technology certainly share some common themes: they involve processes of information exchange and communication, and they both are attributed with resistance to government. See: Thomas Schultz, An Essay on the Role of Government for ODR, (2003) August ADROnline Monthly.21 Joseph W. Goodman, “The Pros and Cons of Online Dispute Resolution: An Assessment of Cyber-Mediation” (2003) Duke L. & Tech. Rev. 4 [Goodman].

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Types of services offered by ODR providers22

A brief history of ODR

Many authors break up the development of ODR into three different stages: the

first lasted until about 1995 (the elementary stage), the second dated from 1995 to 1998

or 1999 (the experimental stage), and the third to the present (entrepreneurial stage).23

Before 1995, only a few specialized dispute resolution procedures were applied

informally in specific online contexts.24 Until 1992, the Internet was largely a US-centred

network, and commercial activity was banned from it under that country’s National

Science Foundation’s acceptable use policy.25 The network was used mainly by

academics for sending email and participating in listservs and, in the case of those with

some technical expertise, for exchanging files. As the network grew, “flaming”26 and

22 UNCTAD, supra note Error: Reference source not found23 Rule, supra note Error: Reference source not found at 21, Katsh & Rifkin, supra note Error: Referencesource not found, UNCTAD, supra note Error: Reference source not found.24 For example, blocking or unsubscribing flamers on mailing lists – Rule supra note Error: Referencesource not found at 21.25 Jay P. Kesan and Rajiv C. Shah, “Fool us once shame on you – fool us twice shame on us: What we can learn from the privatizations of the Internet backbone network and the domain name system” (2001) Washington University Law Quarterly 79, online: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=260834>.26 The term “flaming” refers to the process of sending repeated nasty messages to individuals or about individuals on the Internet – see: Joshi Pradyna, “Flamers Make for Unease on Net”, Milwaukee J.

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other violations of “netiquette”27 emerged. Other early online disputes involved

individuals participating in role-playing games.28 Some online mechanisms were used to

deal with these conflicts, but there were no organized dispute resolution institutions

devoted specifically to ODR. Even the term ODR had not yet been invented. When the

ban on commercial activity on the Internet was repealed, disputes related to commerce

began to surface.29 For example, the first commercial spam case occurred in April 1994.30

The second stage coincided with the growth of the Internet, particularly as a

medium for commerce.31 The idea for ODR emerged out of a recognition that disputes

would multiply as the range of online activities grew. Thus, the origins of ODR are

traceable to a simple insight: the more online transactions there are, the more online

disputes there will be.32 As companies began exploring the Internet’s commercial

opportunities, interest grew in domain names, and many disputes arose between

trademark owners and domain name holders. With the growth of the network, new types

of disputes emerged, for example concerning the legality of linking between websites, or

other intellectual property issues related to the use and copying of information. In fact,

the more the Internet was used for any purpose, the more disputes arose.33 During this

period, recognition grew that the Internet needed some focused online institutions to

address problems that were arising with increasing frequency. The pioneering

experiments in ODR during this phase were largely sponsored by academics and non-

profit institutions. Various projects were designed to allow those involved in a dispute to

obtain expertise from a distance. For example, in the first case mediated by the Online

Ombuds Office, an online mediation project at the University of Massachusetts, an online

Sentinel, Apr. 15, 1996, at 9.27 “Netiquette” means common courtesy online and the informal “rules of the road” of cyberspace – see: Netiquette Home Page, online: <http://www.albion.com/netiquette/>.28 UNCTAD, supra note Error: Reference source not found.29 ibid.30 R. Everett-Church, “The spam that started it all”, Wired News, April 13, 1999, online: <www.wired.com/news/politics/0,1283,19098,00.html>.31 Rule, supra note Error: Reference source not found at 21.32 UNCTAD, supra note Error: Reference source not found.33 ibid.

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mediator helped an individual website owner resolve a problem with a local newspaper

claiming copyright infringement.34

The third stage is the most recent phase, during which commercial entities began

to show interest in online dispute resolution. This stage has involved the

commercialisation of ODR systems. This has coincided with a new interest on the part of

governmental and international institutions in ODR.35 During this period, to large extent,

ODR has become accepted as a needed process in the online environment, and it has been

demonstrated that it can be employed with diverse kinds of disputes originating both on-

and offline. Despite high costs of building and implementing ODR systems, the number

of firms offering some form of ODR has continued to grow. Consequently, the authors of

the 2003 UNCTAD E-Commerce and Development Report conclude, there has been

growing recognition by both governmental and commercial interests that online resources

can be a solution for many problems that originate in the online environment. Thus, the

main achievement of the current phase of ODR’s development seems to be that “it is now

accepted that it is appropriate – indeed, desirable – that ODR be the process of first

choice for disputes generated in online activities”36.

Certainly, the main conclusion that could be drawn from this brief historical

analysis is that ODR is intimately tied to the expansion and development of the Internet.

The role of ODR in cyberspace will be greatest where there is a high degree of

interactivity between a wide variety of users.37 In Colin Rule’s words, the growth of the

net fuels the growth in ODR, and the slowdown in the net, temporarily, slows the growth

of ODR. Yet, in a long run, like the Internet, the expansion and refinement of ODR is

inevitable, “and it goes beyond the flavour-of-the-month attention spans of the media and

the stock market.”38

34 See Center for Information Technology and Dispute Resolution, “Online Ombuds Narrative I: The Web Site Developer and the Newspaper”, online: <www.ombuds.org/narrative1.html>.35 Rule, supra note Error: Reference source not found at 21.36 UNCTAD, supra note Error: Reference source not found.37 E. Casey Lide, “ADR and Cyberspace: The Role of Alternative Dispute Resolution in Online Commerce, Intellectual Property and Defamation” (1996) 12 Ohio St. J. on Disp. Resol. 193 at 193.38 Rule, supra note Error: Reference source not found at 299.

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The theoretical framework

Despite the fact that first online dispute resolution projects were set up a decade

ago, ODR is still in its infancy. No theory – as a systematically organized set of

principles offered to explain a particular phenomenon39 – has been created for ODR so

far. Few authors have written on the theory of online dispute resolution: in the cutting

edge book by Katsh and Rifkin, the section entitled “The Theory of ODR” does not even

fill two pages.40

This lack of theoretical reflection on online dispute resolution results mainly from

the fact that ODR is still a novelty which has not managed to attract popular attention yet.

As of June 1, 2005, altogether only 138 articles in the LexisNexis database contained the

term “online dispute resolution,” and many of them only did so in a single sentence or a

footnote reference. Another important reason is that ODR represents the gamut of dispute

resolution possibilities which are difficult to measure and classify by any coherent set of

criteria and principles. As noted by Rule, ODR may both involve automated negotiation

processes administered by a computer, or it can provide world-class experts to administer

arbitration procedures remotely, for example. “ODR systems can be legalistic and

precedent-based, like the courts, or flexible exception-handling mechanisms to act as an

extension to customer service efforts. ODR can be a multimillion dollar customer

relationship management system or a $ 75 website set up to aid a mediator with

administration of a small case. Any use of technology to complement, support, or

administer a dispute resolution process falls into the world of ODR”.41

This richness of the online dispute resolution phenomenon, inherited from ADR

albeit growing, implies that ODR could be classified into different “traditional” groups of

dispute resolution procedures. While some ODR mechanisms are “procedures of

agreement” (for example online mediation), others belong to “procedures of advice” (e.g.

tools supporting negotiation) or “procedures of decision” (e.g. online arbitration).42

39 See: Merriam-Webster Dictionary, online: <http://webster.com>.40 Katsh and Rifkin, supra note Error: Reference source not found at 10-11.41 Rule, supra note Error: Reference source not found at 44.42 On the classification of the procedures of agreement, advice and decision, see: Genevieve A. Chornenki, The Corporate Counsel Guide to Dispute Resolution (Canada Law Book Inc., Aurora, 1999) at 7-10 [Chornenki].

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Sometimes the ODR neutral plays a facilitative, non-judgemental role, and other times

they have “absolute decision-making authority.”43 ODR can take place both on an ad hoc

basis, as well on the basis of advanced agreement, dispute resolution program and –

arguably, also in the future – legislation or government mandate.44 While some ODR

processes enable integrative (cooperative) problem solving in which parties can work

together to generate new value for both sides (“expand the pie”)45, others – such as

automated blind bidding – are designed for merely splitting a difference.46 Finally, in

cyberspace, like in real space, when seeking to resolve a conflict, parties can rely both on

their interests as well as rights or power. As observed by Bordone, encouraging people to

approach dispute resolution from an interest-based rather than a rights- or power- based

perspective is not always easy, either offline or online.47

As illustrated throughout this paper, the ODR phenomenon encompasses a

collection of diverse procedures intended to prevent, manage or resolve disputes in the

online environment. Fitting them into a coherent theoretical framework suitable for

dispute resolution is certainly a difficult task. Nevertheless, given that dispute resolution

is commonly viewed as a “series of informational exchanges”48, or more specifically as

“a complex process of information management, information processing, and

communication”49 – according to several authors – information and communications

technology lends itself well to this task.50 What makes ODR particularly intriguing and

new is that some of these informational exchanges occur between human and machine,

43 Rule, supra note Error: Reference source not found at 44.44 Chornenki, supra note Error: Reference source not found at 11.45 Rule, supra note Error: Reference source not found at 3746 Yet, it seems that in the realm of the Internet even the latter can bring about a mutually satisfying and “win-win” solution, if applied in appropriate circumstances and upon parties’ consent.47 Robert Bordone, “Electronic Online Dispute Resolution: A Systems Approach – Potential, Problems, and a Proposal” (1998) 3 Harv. Negotiation L. Rev. 175 at 187-189 [Bordone]. See also Rule, supra note Error:Reference source not found at 37, suggesting that both in offline and online settings, disputes are frequently framed as “zero-sum, me-versus-you affairs where any gain enjoyed by one party comes at the expense of the other party”.48 Ethan Katsh, “Online Dispute Resolution: Some Lessons from the E-Commerce Revolution” (2001) 28 N. Ky. L. Rev. 810 at 817 [Katsh, Online Dispute Resolution].49 Julia Hörnle, “Online Dispute Resolution” in John Tackaberry and Arthur Marriott, Bernstein’s Handbook of Arbitration and Dispute Resolution Practice, Volume 1 (Sweet & Maxwell, London: 2003) at 783 [Hörnle, Online Dispute Resolution].50 ibid. at 783.

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rather than directly between human and human.51 Bit by bit, the newest methods of

resolving disputes, embodied in the ODR phenomenon, can change the landscape of

dispute resolution, along with its theoretical underpinnings. Theoretical reflection on

online dispute resolution is still in its infancy. This paper focuses rather on practical, i.e.,

regulatory aspects of the ODR phenomenon. The following discussion of the advantages

and disadvantages of ODR in the context of other dispute resolution mechanisms may be

helpful from both theoretical and practical standpoint.

ODR in the context of other dispute resolution mechanisms

The role of technology in mediating communication between parties is seen as the

main difference between ODR and other methods of dispute resolution.52 Yet ODR

applies technology to achieve the very same goal: helping people to resolve their

disputes.

The role of ODR in the context of other dispute resolution mechanisms has been

often viewed through the prism of achievements of the ADR movement. As noted by

Katsh & Rifkin, “over the last quarter century, ADR has proven that moving justice away

from the courthouse is often desirable and that the arena of dispute resolution, once

thought to be the exclusive domain of law and courts, is markedly different from what it

was several decades ago.”53 While ADR has moved dispute resolution away from

litigation and the courts, online dispute resolution extends this trend even further. If ADR

represents a move from a fixed and formal process to a more flexible one, ODR – by

designating cyberspace as a location for dispute resolution – moves ADR from a physical

to a virtual place54, and makes dispute resolution even more flexible and convenient. The

51 As observed by Katsh, “what makes the design of online processes difficult is that the range of requests permitted to the human by the system must be flexible and broad enough to satisfy the needs of the human. At the same time, however, any possible request must be anticipated so that a suitable and appropriate array of responses is programmed into the machine” – Katsh, Online Dispute Resolution, supra note Error:Reference source not found at 817.52 Rule, supra note Error: Reference source not found at 4553 Katsh and Rifkin, supra note Error: Reference source not found at 27.54 Arno R. Lodder and John Zeleznikow, “Developing an Online Dispute Resolution Environment: Dialogue Tools and Negotiation Support Systems in a Three-Step Model” (2005) 10 Harv. Negotiation L. Rev. 287 at 297 [Lodder and Zeleznikow].

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Internet has brought ADR “directly to each individual’s personal computer.”55 ODR can

combine “the effectiveness of ADR with the comfort of the Internet.”56

ADR was the original model for ODR, and many goals and techniques of ADR

will certainly remain goals and techniques of ODR.57 As noted by Rule, ODR started out

as the administration of ADR processes online: it was seen as a way to replicate face-to-

face interaction when such interaction was not possible. If the face-to-face mediation

process involved three stages (such as unassisted storytelling, assisted storytelling, and

joint problem solving), then that was exactly what early online neutrals attempted to do.

The tasks of the online mediator were the tasks of the offline mediator: reframing the

discussion, keeping the parties on track, and reality-testing proposed solutions.58 Online

mediation still strongly resembles offline mediation, and it does not seem likely to

change in the not-so-distant future. Online processes can even get closer to replicating

“true” dispute resolution procedures as technology is perfected.59 Today, since high-

quality videoconferencing systems are not yet easily affordable, communications in

online mediation are mainly textual and asynchronous. The principal means of

communication are thus email and web-based communications, i.e. chat rooms and

bulletin boards.60 In the future, videoconferencing, and certainly also new means of

communication, will be utilized to more accurately replicate face-to-face interaction in

the online environment. Regardless of the quality and accessibility of videoconferencing

however, of course ODR will never completely replace the face-to-face encounter. ODR

should not be seen as a competitor or substitute for offline alternative dispute resolution61,

but rather a natural response to the emergence of new sphere of human activity and,

consequently, new types of conflicts.

55 Martin C. Karamon, “ADR on the Internet” (1996) 11 Ohio St. J. on Disp. Resol. 537 at 548.56 Lodder and Zeleznikow, supra note Error: Reference source not found at 337.57 Ethan Katsh, “Bringing Online Dispute Resolution to Virtual Worlds: Creating Processes through Code” (2004/2005) 49 N.Y.L. Sch. L. Rev. 271 at 285 [Katsh, Bringing].58 Rule, supra note Error: Reference source not found at 44 (noting that arbitration were even simpler).59 ibid.60 Thomas Schultz, “Does Online Dispute Resolution Need Governmental Intervention? The Case for Architectures of Control and Trust” (2004) 6 N.C. J.L. & Tech. 71 at 74 [Schulz, Does Online].61 See, for example, Joel B. Eisen, “Are We Ready for Mediation in Cyberspace?” (1998) BYU L. Rev. 1305 at 1308 [Eisen] (who noted that “electronic communication is no substitute for the ability of face-to-face conversations to foster important process values of mediation.”)

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The necessity for new methods of dispute resolution arises from the fundamental

nature of the Internet itself. First, the global character of the Internet undermines the

notion of territoriality, one of the foundations of traditional locus-based systems of

dispute resolution. Because the Internet does not correspond to the jurisdiction of any

sole existing sovereign entity, territorially defined laws and rules are difficult to apply to

the Internet and activities of Internet users.62 Traditional, state-run and territorial courts

are “too slow, too expensive, and too inaccessible to address all problems that arise on

the Internet.”63 The Internet collapses not only physical space, but also time, in many

ways. Information travels rapidly on the Web: cyberspace allows people in all corners of

the world to send and receive information 24/7. This feature has significant implications

for the world of dispute resolution. As noted by Rule, “one way that online interaction

completely changed the dispute resolution process was in the way it changed the

participants’ notion of time.”64 They can contact one another much faster and more often

than ever before. In addition, they can do it in a number of ways. New synchronous (such

as instant messaging or VoIP) and asynchronous (for example threaded discussion) ways

of communication became available, and are already widely employed in online dispute

resolution65.

As observed by Bordone, online technology brought about the vast potential for

increasing communication and understanding, and at the same time, also an increased

potential for misunderstanding. “From one’s computer terminal, it is difficult to

understand the implications of cyberspace’s annihilation of distance and space on

communication in relationships. […] In the non-virtual world, persons communicate

using much more than mere words. Tone, affect, space, and time all add to the richness of

an interpersonal communication and help us to calibrate our responses appropriately to

that of our counterpart.”66 While it is easier to communicate a difficult or unpleasant

62 Alejandro E. Almaguer and Roland W. Baggott, III., “Shaping New Legal Frontiers: Dispute Resolution for the Internet” (1998) 13 Ohio State Journal on Dispute Resolution 711 at 712 [Almaguer and Baggott].63 David R. Johnson and David Post, “Law and Borders –The Rise of Law in Cyberspace” (1996) 48 Stan. L. Rev. 1367 at 1372-1373.64 Rule, supra note Error: Reference source not found at 47.65 ibid. According to Rule, most people do not interact at the same time over the Internet. Many communication technologies used online were actually designed as asynchronous to allow people to log on as they like throughout the day.66 Bordone, supra note Error: Reference source not found at 180-181.

16

message via email, or other asynchronous means, than in person or on the telephone (the

“distance” of time and location makes such communications more comfortable for the

messenger), the impact on the receiver is not likely to be any better. On the contrary, the

ultimate effect of using a computer-mediated communication to “comfortably” deliver

“uncomfortable” messages can actually lead to more rather than less conflict between the

involved parties.67

Although online dispute resolution borrows so much from ADR, its place is in a

very different environment. In cyberspace, “communication transcends time, space, and

physical reality”.68 These unique characteristics inevitably influence the nature and type

of disputes arising on the Internet, and thereby the type of dispute resolution process best

suited for the forum.69 As the Internet grows, new forms and techniques of ODR are

being developed, such as software that helps parties to brainstorm, identify their interests

and priorities, or organize and focus their conversation. As a result, ODR becomes

increasingly independent from the world of offline ADR. There is no doubt that ODR has

already moved out of the stage where it was a mere, and inherently pale, imitation of

face-to-face interaction when such interaction was not possible.70 Online technology

presents us with opportunities to develop new tools for dispute resolution that might be

employed in both online and offline environments.71 While ODR still borrows much from

ADR, it seems that in the future ADR will also borrow from ODR.72

Disadvantages and Advantages of ODR

Disadvantages

The most frequently heard concern about ODR has been that online processes and

interactions “cannot match the richness of the face-to-face sessions that are at the heart of

offline mediation” and other traditional dispute resolution methods.73 Many authors argue

that ODR loses the dynamics of ADR because it takes place at a distance and in front of

67 ibid. at 180-181.68 ibid. at 179.69 ibid.70 Katsh, Bringing, supra note Error: Reference source not found at 284.71 ibid. at 290-291.72 Katsh and Rifkin, supra note Error: Reference source not found at 24.73 Katsh, Bringing, supra note Error: Reference source not found at 282.

17

computer screens, rather than communicating face-to-face. Although online technology

helps reduce the physical distance between participants, “an electronic distance”74 is

imposed upon them since they cannot involve direct interpersonal contact. While a wink

can be more meaningful than a word75, the wink – unlike the word – is not easily

transmittable over the Internet. Communications online are not yet able to “express the

variable tone, pitch and volume of the participants and cannot transmit personalities or

physical cues.”76 This weakness results in several problems relating to openness of a

dialogue, trust, a neutral’s control over the process of dispute resolution, and ultimately

its effectiveness.

Those concerns seem particularly clear in relation to online mediation. As noted

by D’Zurilla, “there is almost universal agreement that mediation is most effective if the

parties to the dispute are physically present before the mediator”77, and it is needless to

say that this condition cannot be satisfied in the case of online mediation. Mediation is

normally based on an informal, face-to-face discussion between participants. For many of

them, especially in family or neighbour disputes, “mediation is about the ‘venting’ of

feelings and emotions that they would be unable to express in a more formal setting such

as a courtroom. The opportunity to tell one’s version of the case directly to the opposing

party and to express accompanying emotions can be cathartic for mediation

participants.”78 Venting feelings, confronting emotions, and empathizing with each other,

considered important parts of mediation, must appear difficult when parties communicate

via computer screens.

Many authors argue, therefore, that there are large barriers to creating an open

dialogue between online mediation participants. As noted by Goodman, it is more

difficult to evaluate not only the strength of a party’s feelings, but also their confidence

or flexibility on particular issues.79 In addition, as concerns disputes arising online, “there

is typically no prior connection or any personal contact between the parties, they

generally do not have an ongoing relationship (in fact, they often know little about one

74 Eisen, supra note Error: Reference source not found at 1310.75 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 816.76 Goodman, supra note Error: Reference source not found.77 William T. D’Zurilla, “Alternative Dispute Resolution” (1997) 45 LA. B.J. 352.78 Eisen, supra note Error: Reference source not found at 1323.79 Goodman, supra note Error: Reference source not found.

18

another), nor is there any hope of a future relationship (most often, cyber-disputes

involve a “one-shot transaction”).”80 The lack of an established relationship or personal

connection can make it difficult for the online mediator to maintain effective control over

the process.81 The mediator, at least in the beginning, is only “a disembodied voice and

cannot use his or her own physical ‘personhood’ to set the parties at ease and create an

environment for sustained problem-solving.”82 The online environment constrains the

mediator’s ability to express “serious demeanour, professional presentation, occasional

humour, and just plain charisma.”83 Lacking the physical presence of the disputants, “the

mediator has difficulty using the intuitive cues of body language, facial expression, and

verbal tonality that are part of face-to-face mediation processes.”84 Thus, as Eisen

concluded, many mediators remain sceptical about ODR and “find it largely impossible

to translate their skills to the online setting.”85

Certainly, the rich practice of ADR cannot be easily reproduced in the online

environment. In addition to this major concern, several other factors are considered

disadvantages, or at least obstacles, in the use of ODR. Access to online computers may

pose a problem for some individuals, especially those involved in disputes that result

from offline transactions.86 Those who are less familiar with computers may be at a

disadvantage as compared to their opponents possessing higher IT skills. On the other

hand, it seems that access to information technology is increasing at a relatively rapid

rate, and the gap between IT haves and have-nots is closing.87 Another significant

concern refers to security and confidentiality of online communications. There are

different ways of eavesdropping, or surveilling, on the Internet. ODR creates more

80 ibid.81 ibid. Goodman observed further that in the online environment, especially when using emails, it is more “difficult for the mediator to manage or temper the tone of the interactions without sounding controlling and judgmental”.82 Ethan Katsh, Janet Rifkin and Alan Gaitenby, “E-Commerce, E-Disputes, and E-Dispute Resolution: In the Shadow of ‘eBay Law’,” (2000) 15 Ohio St. J. On Disp. Resol. 705 at 714 [Katsh, Rifkin and Gaitenby].83 Bruce Leonard Beal, “Online Mediation: Has Its Time Come?” (2000) 15 Ohio St. J. On Disp. Resol. 735 at 737 [Beal].84 Katsh, Rifkin and Gaitenby, supra note Error: Reference source not found at 714.85 Eisen, supra note Error: Reference source not found at 1323.86 Goodman, supra note Error: Reference source not found.87 Benjamin M. Compaine (ed.), The digital divide: facing a crisis or creating a myth? (Cambridge, Mass.: MIT Press, 2001).

19

(electronic and ultimately also physical) records than ADR. One may fear that the other

party will simply print out and distribute, for example, e-mail communications without

their knowledge and consent. As noted by Katsh, this concern may additionally hinder

the development of open and honest exchanges in ODR.88 In addition, certain alleged

disadvantages of ODR, as presented by some authors, refer to specific ODR processes.89

For instance, blind binding was criticized as a method appropriate only for very simple

disputes. These concerns do not seem valid to the extent that it is clear that “no size fits

the all”, and several disadvantages of each traditional method, if inappropriately applied,

could be also easily pointed out.

Advantages

One of the most significant advantages of ODR is that it obviates the need for

travelling and substantially reduces cost. There is also a growing consensus that ODR can

make dispute resolution more efficient, allowing for better time and cost management,

greater flexibility in procedure, and more creative solutions.90

Perhaps the most recognized benefit of ODR – as observed by Bordone – is that

the disputants do not have to travel lengthy distances.91 In the offline world of dispute

resolution, if the parties want to be directly involved in resolving a given dispute, at least

one of them would have to travel, sometimes far and wide. However, ODR enables the

parties to directly and actively participate in dispute resolution from the comfort of their

offices. There is also no need to transport relevant documents and materials or rent a

neutral facility to conduct the proceedings. The Internet provides a neutral forum which

denies a one of the parties the potential to exploit the “home court advantage.”92 Because

88 Ethan Katsh, “Dispute Resolution in Cyberspace” (1996) 28 Conn. L. Rev. 953 at 971.89 In this context, Goodman gave an example of fully automated systems that can only be used to resolve specific types of disputes and, even then, can only handle disputes where the amount of the settlement is the only unresolved issue. As he noted, “limiting the final stage of negotiations to determining a dollar figure for compensation seemingly leaves out the possibility for innovative, interest-oriented, out-of-the-box negotiating that is the hallmark of many successful negotiations.” – Goodman, supra note Error:Reference source not found.90 See, for example, Hörnle, Online Dispute Resolution, supra Error: Reference source not found note at 786; and Lide, supra note Error: Reference source not found at 219.91 See: Lan Q. Hang, “Online Dispute Resolution Systems: The Future of Cyberspace Law” (2001) 41 Santa Clara L. Rev. 837 at 854 [Hang] and Bordone, supra note Error: Reference source not found at 176.92 Richard Michael Victorio, “Internet Dispute Resolution (IDR): Bringing ADR into the 21 st Century” (2001) 1 Pepperdine D.R.J. 279.

20

a neutral does not have to travel either, parties can more easily find good candidates with

specific expertise in the area of their dispute. As a result, ODR multiplies the substantial

savings provided by ADR as compared with traditional litigation93 and therefore

increases access to justice in today’s society.94 In fact, as noted by Gibbons, Kennedy and

Gibbs, ODR may be the only feasible option in many instances (for example, for

individuals involved in international e-commerce disputes for relatively low dollar

amounts).95

ODR may lead to reduced costs thanks to the expenditure of less time and, in

general, more efficient time utilization. ODR mechanisms operate around the clock:

many of them are available all day long, every day of the year. Even if other ODR

systems are not available upon demand, the turnaround time is still relatively short.96

Related to availability is the convenience of scheduling.97 Especially when parties chose

to resolve their disputes, partly or entirely, through e-mail or other asynchronous means

of communication, then any of them may post and read messages at any time, at their

convenience, thereby avoiding the hassles of trying to arrange times and places for

meetings.98

There are several other benefits that stem from the asynchronous communications

available on the Internet. Messages are not transmitted live, but can be written, reviewed,

and then sent. Thus, it may be argued that more thoughtful, well-crafted contributions

result from the ability of the parties to edit messages prior to sending them:

“asynchronous Internet communications have the advantage of being edited in contrast to

impulsive responses that often can take place in real time face-to-face mediation

93 For example, with attorney’s fees being a great expense in traditional litigation, parties may be able to save a lot of money in ODR, where hiring an attorney – even more then in ADR – is often unnecessary – George H. Friedman, “Alternative Dispute Resolution and Emerging Online Technologies: Challenges and Opportunities” (1997) 19 Hastings Comm. & Ent. L.J. 695 at 712 [Friedman] and Hang, supra note Error:Reference source not found at 855.94 Teitz suggested that ODR could become an important vehicle for affordable justice for the middle class – Louise Ellen Teitz, “Providing Legal Services for the Middle Class in Cyberspace: The Promise and Challenge of Online Dispute Resolution” (2001) 70 Fordham Law Review 985 at 986-91 [Teitz].95 Llewellyn Joseph Gibbons, Robin M. Kennedy, and Jon Michael Gibbs, “Frontiers of Law: The Internet and Cyberspace: Cyber-mediation communications Medium Massaging the Message” (2002) 32 N.M.L. Rev. 27 at 42.96 Hang, supra note Error: Reference source not found at 855 and Catherine Kessedjian and Sandra Cahn, “Dispute Resolution On-Line” (1998) 32 Int’l Law. 977 at 977-978.97 Friedman, supra note Error: Reference source not found at 712.98 Hang, supra note Error: Reference source not found at 855.

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discussions.”99 Experienced neutrals – as explained by Melamed – are well aware of the

benefits of asynchrony. “This is a big part of the reason that many mediators meet

separately with each party. Mediators want to slow the process down and assist

participants to [safely] craft more capable contributions. ... When the Internet is utilized

for caucus, the ‘non-caucusing participant’ does not need to sit in the waiting room or

library reading Time magazine or growing resentful at being ignored.”100 As a result, in

ODR, the amount of idle time that disputants experience can be reduced, and the neutral

can caucus without affecting the flow of the process.101

Many other features of ODR, which have been often perceived as its

disadvantages, can actually bring about significant benefits. Despite the concerns about

confidentiality and security, the fact that records are automatically created for all online

communications has consequences for “building feedback and intelligence into the ODR

process.”102 It enables the all parties to recreate “who said what” and under what

circumstances. This may serve diverse purposes, from a neutral’s standpoint. Recreation

is a useful tool for studying the possibilities for improvement of dispute resolution

practices. It seems possible that such a record could allow for a more thoughtful

intervention by the neutral who would be able to analyse the parties’ communication

more thoroughly in order to identify obstacles to communication, determine where shared

interests may lie, and how to build on them to bring about agreement.

Lack of in-person interaction, considered the most significant disadvantage of

ODR by many commentators, may also prove to be an advantage in certain

circumstances. Lodder and Zeleznikow argued that it can happen for disputes in which

the emotional involvement of the parties is so high that it is preferable that they do not

see each other.103 Arguably, the “impersonal” nature of online communications could

help the parties to be better able to distinguish between the person and the conflict (as is

99 Jim Melamed, “The Internet and Divorce Mediation”, online: <http://www.mediate.com/articles/melamed9.cfm> [Melamed].100 ibid.101 Goodman, supra note Error: Reference source not found.102 Katsh and Rifkin, supra note Error: Reference source not found at 81.103 Lodder and Zeleznikow, supra note Error: Reference source not found at 302: “It can happen when parties have a history of violent conflict, the costs of being in the same room are exorbitant, parties are in different time zones, or parties cannot agree upon a joint meeting time.”

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suggested in principled negotiation104). In addition, many participants of “one-shot

transactions” do not want to enter into a closer relationship with the other party, or even

wish to remain anonymous (hidden under an online “nick name” or other kinds of

pseudonyms). As noted by Hang, “anonymity is highly valued over the Internet”, and

ODR may preserve anonymity and resolve the dispute at the same time.105

It does not mean though that online dispute resolution and, more broadly, Internet

communications are inherently emotionless. Quite the opposite, the richness of diverse

Weblogs, chat rooms and other forums where Internet users share their views, seek

advice or make friends, reveals that more and more people do not mind talking about

their lives and feelings, including often fairly intimate secrets, while sitting in front of a

computer. Frequent users of online systems get a specific sense of proximity, even

though in reality they are separated by geographic distances.106 Thus, creating an

atmosphere in which parties trust a neutral and increasingly also each other, which is

considered vital, if not indispensable, for the effectiveness of most out-of-court dispute

resolution mechanisms107, appears difficult but not impossible in the online settings. It

presents a new challenge for dispute resolution professionals. Certainly, trust and

understanding necessary to effectively resolve a dispute can be achieved even in the

absence of physical presence. The ways to do so must, to some extent, differ from their

offline counterparts, as cyberspace is not, and will never be, a ‘mirror image’ of the

physical world.

Pros and Cons of ODR: A Recap

Undertaking dispute resolution over the Internet has advantages and

disadvantages when compared with traditional, face-to-face methods. The most often

cited advantages include cost savings and convenience, while the disadvantages include

104 Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In (New York, N.Y.: Penguin Books, 1991) at 17-39.105 Hang, supra note Error: Reference source not found at 858.106 David K. McGraw, “Sexual Harassment in Cyberspace: The Problem of Unwelcome E-mail” (1995) 21 Rutgers Computer & Tech. L.J. 491. See also Katsh arguing that “cyberspace assumes that the removal of spatial barriers combined with the high level of online interaction creates [sic] a feeling among those electronically connected that they are indeed in the same place even though they are physically separated by great distances.” (Ethan Katsh, “Law in a Digital World: Computer Networks And Cyberspace” (1993) 38 Vill. L. Rev. 403 at 415).107 Eisen, supra note Error: Reference source not found at 1325.

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that it is impersonal and potentially inaccessible, in one way or another, to some

individuals.

Certainly, ODR is still a recent phenomenon and will likely become an

increasingly effective mechanism for resolving disputes as technology advances. Many

authors place high expectations on videoconferencing. Katsh, Rifkin and Gaitenby, for

example, argue that videoconferencing is an “obvious solution to the lack of face-to-face

encounters” in online dispute resolution.108 Similarly, Goodman claims that some of the

disadvantages of online mediation may be overcome as technology advances and high-

speed Internet connections allow for video-conferencing.109 When video conferencing is

more cost effective and improved technologically, mediation may occur online without

losing very much of what is present when parties meet face to face.110 Finally, Beal

concluded that “online mediation will not manifest fully until videoconferencing

becomes commonplace”, that is when video cameras and microphones are built into

computers, videoconferencing software is bundled with computers, and modems are fast

enough to accommodate videoconferencing.111

Thus, ODR seems to be in a transition period, when we want and have more than

mere electronic mail, but still have to wait “until videoconferencing technology becomes

commonplace”. Certainly, oral expressions of feelings in a face-to-face setting, replicated

online by videoconferencing, can have “a richer and more meaningful context than

written expressions of feelings in an e-mail exchange.”112 However, it should be kept in

mind that “face-to-face sessions are prized not because the parties can see each other’s

faces but because seeing faces adds new opportunities for communicating information

and interacting efficiently”.113 This is the ongoing goal for ODR programs to gradually

increase the richness of interaction online.114 It can be done through replication of

traditional ADR practices via videoconferencing, but also many novel techniques and

methods can be of great help. In certain circumstances, “old and simple” email may be 108 Katsh, Rifkin and Gaitenby, supra note Error: Reference source not found at 718.109 Goodman, supra note Error: Reference source not found.110 Katsh, Bringing, supra note Error: Reference source not found at 285.111 Beal, supra note Error: Reference source not found at 736.112 Eisen, supra note Error: Reference source not found at 1311.113 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 820.114 Janet Rifkin, “Online Dispute Resolution: Theory and Practice of the Fourth Party” (2001) 19 Conflict Resolution Quarterly 117 at 120.

24

most appropriate. Asynchronous, written means of communications, for many of us are

most convenient to express one’s thoughts and to give weight to emotion. Finally, in

many situations, especially in thousands of one-off domestic and international

transactions that take place on the Internet on a daily basis, “venting feelings” and face-

to-face catharsis are simply not needed. Therefore, ODR can develop with or without

cheap and high-quality videoconferencing technology. In the future, videoconferencing

should supplement rather than replace asynchronous means of communications which

possess their own unique features. Videoconferencing will indisputably help to increase

the richness of online interaction, but its importance must not be overstated.

Cyberspace adds new opportunities for communicating and interacting efficiently.

Users have an increasing number of options for oral and written, synchronous and

asynchronous, verbal and non-verbal, expression. Paradoxically as it may seem, thanks to

ODR, that the neutral is given greater control over the dispute resolution process than in

offline world.115 This is what Rule finds the primary change that online dispute resolution

brings to ADR: “the ability to control the communication environment within which the

parties interact.”116 A neutral’s greater control over a dispute resolution process per se

appears neither an advantage nor a disadvantage of ODR. It would affect the process

negatively if the concept of parties’ self-government (which is the fundamental

theoretical justification of ADR) would be undermined in ODR. Yet, it seems that this is

not the case. Presently, the parties of ODR generally maintain control over the outcome

of their dispute to the extent comparable to ADR. On the other hand, the neutral’s greater

control over the communication process may become an advantage. They can apply more

communication options to dispute resolution, and design a process for a particular dispute

in a more effective way. Building trust and maintaining a non-hostile environment is

doable even without physical presence. Parties do not have to travel, to see, hear and

understand each other. It seems plausible to conclude all the pros of ODR in

combination, may already outweigh its cons, and in the future ODR must become a

mainstream mechanism for resolving disputes.117

115 Rule, supra note Error: Reference source not found at 45.116 Rule, supra note Error: Reference source not found at 54.117 Lodder and Zeleznikow, supra note Error: Reference source not found at 302.

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Building Future Dispute Resolution Systems Online

Even in countries with relatively developed ADR practices, litigation still

occupies a central place in a dispute resolution system and popular beliefs about dispute

resolution. Out-of-court dispute resolution mechanisms are persistently described as

“alternative” which clearly suggests that there is a primary model for settling disputes,

needless to say, litigation in court. Yet many authors argue that what are considered the

alternatives offline might become the primary models of dispute resolution online. As

observed by Katsh, especially with those disputes that arise online, “there is even less

reason to think that courts will be the choice of first resort.”118

Even if courts today are more and more eager to send cases to mediation and

arbitration, only one generation ago, “the idea of moving dispute resolution ‘out of court’

encountered concern similar to the concern expressed today about moving dispute

resolution to the arena of cyberspace.”119 Nevertheless, since then the landscape of

dispute resolution has profoundly changed, and certainly will keep changing in the future.

Many factors that have encouraged the growth of ADR offline will also be factors

affecting the further growth of ODR. Traditional courts simply do not have enough

ability, and in many cases arguably also authority, to effectively resolve disputes that

arise from online activity. As illustrated throughout this paper, the Internet’s global

nature undermines the fundamentals of traditional dispute resolution systems, such as the

notion that legally significant actions take place in a physical location.120 It is claimed that

the Internet is creating a new, global online society that lives by its own rules, and it is

not subject to any one particular jurisdiction.121 In this context, ODR is considered

important part of “the movement to build civic institutions online.”122 If we take into

account to what extent the Internet has already became part of our lives in one decade

only, and the ease with which the younger generation uses online tools123, we can expect

118 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 813.119 Katsh and Rifkin, supra note Error: Reference source not found at 26.120 Almaguer and Baggott, supra note Error: Reference source not found at 712.121 Rule, supra note Error: Reference source not found at 203122 Katsh and Rifkin, supra note Error: Reference source not found at 19123 See David A. Larson, “Online Dispute Resolution: Do You Know Where Your Children Are?” (2003) 19 Negot. J. 199 at 199-205 (describing how youth build intimacy and trust through on-line relationships). See also Erik Roelvink, “The Future Has Begun!”, online: <http://www.emediation.nl/odren.htm> (“The

26

that in the not-too-distant future ODR will surpass offline dispute resolution, and will

become a central method of dispute resolution.124

There are a few existing or purely theoretical or speculative models of dispute

resolution systems in which ODR plays a main role. There is consensus that the first truly

global online dispute resolution system, albeit limited to specific cases, was adopted in

the late 1990s by the Internet Corporation for Assigned Names and Numbers (ICANN).125

ICANN is the non-for-profit organization established to administer the Internet domain

name system. In this function it has promulgated a dispute resolution procedure, the

Uniform Dispute Resolution Policy.126 This procedure assists the resolution of disputes

between a trademark owner and a registrant of a domain name (the UDRP is binding on

the registrant of the domain name: it is incorporated into the contract between the

registrant and the registrar of the domain names). Many authors have suggested that the

development of a global system via ICANN is without historical precedent127, and thus

UDRP might be recognized as a seed of a fair global justice online scheme. Hörnle, for

example, assessed that UDRP is a “successful procedure [that] can serve as a model for

ODR of other disputes”128. On the other hand, critics have pointed out that ICANN’s

success has been accompanied by several problems such as lack of legitimacy, forum

shopping, uncontrolled choice of law decisions or inconsistent interpretation.129

One of the most interesting examples of theoretical ODR models has been given

by Bordone who called for setting up a comprehensive “dispute resolution system for the

world of Cyberspace”.130 The entry point of this system would be a Web page called the

Dispute Resolution Referral Center (DRRC), fashioned after a multi-door courthouse or

younger generation is of course raised with the internet. Chatting and email are a part of every day routine for this generation. Conflicts are of all ages. For younger people it will be natural to solve a conflict online”).124 Lodder and Zeleznikow, supra note Error: Reference source not found at 337.125 Internet Corporation for Assigned Names and Numbers, online: <http://www.icann.org/>.126 Uniform Dispute Resolution Policy, online: <http://www.icann.org/udrp/udrp.htm>.127 Klein, for example, wrote that creation of ICANN has been “the most significant development in the trend to render the Internet governable.” – Hans Klein, “Private Governance for Global Communications: Technology, Contracts, and the Internet” in Sandra Braman, ed., Emergent Global Information Policy Regime (Hampshire: Palgrave Macmillan, 2004) 179 at 180.128 Hörnle, Online Dispute Resolution, supra note Error: Reference source not found at 814.129 Elizabeth G. Thornburg, “Fast, Cheap, and Out of Control: Lessons From the ICANN Dispute Resolution Process” (2001) 7 J. Small & Emerging Bus. L. 191 at 207-225.130 Bordone, supra note Error: Reference source not found at 202-203.

27

multi-option justice system that was first introduced by Professor Frank Sander in

1976.131 Under such a model, a disputant entering the DRRC would be referred to a

Dispute Diagnostic Specialist (DDS). The DDS would create a “private chat room”

serving as the secure repository for all information related to the dispute. Then, the DDS

would gather necessary information, evaluate the nature of the dispute, and recommend

to the parties several options which might prove successful in resolving it. Depending on

the nature and circumstances of the conflict, these options might include opportunities for

unassisted online negotiation, an online mediation, an online arbitration132, an assisted

negotiation/mediation hybrid using an ombudsman, further fact-finding by an

ombudsman, or if the dispute were outside the jurisdiction of the Cyberspace model,

references to territorially-based legal agencies. In the model offered by Bordone, the

DRRC would be “the mandatory entry point for all online disputes” (yet once the DDS

offers his or her recommendations, the disputants would be free to choose whichever

process they prefer), all decisions would be logged into a case library “accessible to all

residents of Cyberspace”133, and finally sanctions would be limited to the online

community (they would include, for example, forcing a disputant to post an apology or a

correction of some specified sort, forbidding a party from sending or posting messages

for a specific amount of time, or “temporarily suspending citizenship rights in

Cyberspace”).134

In conclusion, one might argue that the models of dispute resolution systems

based on ODR have been either seriously flawed or unrealistic. Contrary to some very

optimistic predictions made a few years ago, ODR has not revolutionised the conduct of

131 Frank E.A. Sander, “Alternative Methods of Dispute Resolution: An Overview” (1985) 37 Fla. L. Rev. 1 at 12-13 (describing the multi-door courthouse model as one in which disputants would first present their dispute to a clerk who would then refer it to one of a host of dispute resolution methods ranging from adjudication to mediation to an ombudsman); see also Charles Ruhlin & Harry N. Scheiber, “Umpiring the Multi-Option Justice System” (1996) 80 Judicature 58 at 58.132 As noted by Bordone, “the arbitration option represents the adjudicative, adversarial model of dispute resolution for the Internet. Since some disputes are appropriately decided by third parties because they are conflicts over rights and power, it is essential that even the most ambitious and evolved interest-based dispute resolution model offer an adjudicative option for resolving disputes” – Bordone, supra note Error:Reference source not found at 202-203.133 ibid.134 ibid. at 206-207.

28

ADR.135 Thus one may ask the question whether ODR is merely a passing fad with no

real impact on the arena of dispute resolution. The answer to this question is certainly

negative: there is a clear need for ODR in the online environment.136 The Internet and

ODR is still in a process of institution building, and even of it takes longer than originally

assumed, everything is still in place to develop a global ODR system.137

135 Hörnle, Online Dispute Resolution, supra note Error: Reference source not found at 834.136 ibid. at 835.137 Rule, supra note Error: Reference source not found at 34.

29

III. THE FOUR MODALITIES OF REGULATION

Law

The most common way to regulate behaviour is law. Even “a gap in the law” can

encourage or deter people from undertaking certain activities. A legislative framework is

rarely “neutral”, instead, it appears either positive or negative towards a given social

phenomenon. This chapter argues that the current legislative framework does not

promote online dispute resolution. Quite the contrary, the lack of comprehensive

government regulation and legal certainty hampers the growth of ODR.

In the early days of cyberspace, many idealists in the online community viewed

the Internet as a separate world that should develop its own laws without national

government intervention.138 A number of commentators wrote about new possibilities and

freedoms offered by virtual reality which were allegedly unencumbered by national laws

or government regulation. In addition, several opinions were voiced to support the claim

that the rise of cyberspace brings about “the Twilight of the State”139, a kind of

“Wagnerian Staatendammerung”.140 After a half millennium of dominance of the

international political and legal arena, the institution of the nation-state was allegedly

“relegated to the ash heap of history.”141 This process was supposed to happen due to the

“increasing irrelevance of the physical borders and boundaries that simultaneously

circumscribe and define [a state’s] proper sphere of action.”142 It has been argued that in

138 A Cyberspace Declaration of Independence has been proclaimed by Barlow: “Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather. (…) We have no elected government, nor are we likely to have one, so I address you with no greater authority than that with which liberty itself always speaks. I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us. You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear.” – John Perry Barlow, A Cyberspace Independence Declaration, online: <http://web.archive.org/web/20040209123724/http://www.eff.org/barlow>.139 Walter B. Wriston, The twilight of sovereignty: how the information revolution is transforming our world (New York: Scribner, 1992).140 David Post, “The ‘Unsettled Paradox’: The Internet, the State, and the Consent of the Governed” (1997-1998) 5 Ind. J. Global Legal Stud. at 521 [Post, Unsettled Paradox].141 Jean-Marie Guéhenno, The end of the nation-state (Minneapolis: University of Minnesota Press, 1995).142 Post, Unsettled Paradox, supra note Error: Reference source not found at 521.

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both “multinational and non-national”143 cyberspace, the concept of territory “slowly

looses its substance”144, and we are inevitably led to ultimate disintegration of a territory-

based state’s authority. Impliedly, taking into account that the conceptual triangle

“territory – state – law” has been traditionally taken for granted145, the role of law as a

primary regulator of human behaviour would be corrupted.

Law has been never considered a perfect tool for regulation when its subject was

characterized by high instability. In the Internet era, lawmakers are permanently

“scrambling to catch up to the innovative developments in information technology.”146

Given the speed with which innovations and changes happen, it is difficult for

legislatures or courts to establish effective rules. Technology-related laws often have a

short life duration.147 Those intended to be “technologically neutral” and survive more

than one generation of technological changes often turn out to be too broad and imprecise

to properly fulfill their regulatory role.

Despite this general weakening of the regulatory power of national governments

in the online environment148, in recent years, “national governments have sought to

extend their traditional sovereignty and national laws to the Internet”149, addressing such

issues as cybercrime, Internet gambling, taxation of e-commerce, privacy, child

protection, pornography, money laundering, and terrorism, in the context of new

challenges posed by the Internet. While some of those efforts completely failed, others

made at least moderate success. Commentators anticipate that governments will continue

143 Katherine L. Lynch, The forces of economic globalization : challenges to the regime of international commercial arbitration (The Hague: Kluwer Law International, 2003) at 368 [Lynch]. Lynch noted that the essence of this problem centres around the following issue: “because anything posted on the Internet can be viewed almost anywhere on the earth, can any national court claim jurisdiction over the worldwide network?”144 Thijmen Koopmans, Courts and political institutions: A comparative view (Cambridge: Cambridge University Press, 2003) at 255.145 See, for example, Hans Kelsen, General Theory of Law and State (New York: Russell & Russell, 1973) at 275.146 Lynch, supra note Error: Reference source not found at 348.147 Nicholas W. Allard & David A. Kass, “Law and Order in Cyberspace: Washington Report” (1997) 19 Hastings Comm. & Ent. L. J. 563.148 Lessig, supra note Error: Reference source not found at 188-209.149 Lucille M. Ponte and Thomas D. Cavenagh, CyberJustice: online dispute resolution (ODR) for E-commerce (Upper Saddle River, N.J.: Pearson/Prentice Hall, 2005) at 137 [Ponte and Cavenagh].

31

to seek greater control over regulation of the Internet in an effort to uphold their national

interests and priorities.150

So far, as observed by Lynch, the trend has appeared to be “the adaptation or

revision of existing legislation developed for earlier technology rather than the

development of comprehensive new legal approaches to cyberspace and the new

technologies of the 21st century.”151 In the field of dispute resolution, the existing regime

is also being modified to accommodate new technologies and their application to

traditional forms of dispute resolution. This trend concerns most clearly arbitration (in

particular, international commercial arbitration) which – unlike many other out-of-court

dispute resolution mechanisms – is relatively precisely regulated by law. The current

legal framework for online arbitration is provided by multiple layers of regulation.

Besides institutional rules and private contractual agreements (which are characteristic of

other ADR/ODR as well), the regime of international commercial arbitration consists of

international conventions152, bilateral treaties, “soft” or model laws (i.e. UNCITRAL

Model Law on International Commercial Arbitration153) and finally national arbitration

laws. The central role in the system of international arbitration is played by the New

York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral

Awards154, called “the single most important pillar on which the edifice of international

arbitration rests”155, and “perhaps […] the most effective instance of international

legislation in the entire history of commercial law.”156 There has been a willingness to

“adapt” the New York Convention and other arbitration laws to incorporate and apply to

arbitrations conducted in cyberspace. Online arbitration has been the subject of a recent

150 Lynch, supra note Error: Reference source not found at 348.151 ibid.152 For example, the European Convention on International Commercial Arbitration of April 21, 1961, the Inter-American Convention on International Commercial (“Panama Convention”) of January 30, 1975 and the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards (“Montevideo Convention”) of May 8, 1979.153 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration is available online at: <http://www.uncitral.org/english/texts/arbitration/ml-arb.htm>.154 Convention on the Recognition and Enforcement of Foreign Arbitral Awards is available online at: <http://www.uncitral.org/english/texts/arbitration/NY-conv.htm>.155 J. Wetter, “The Present Status of the International Court of Arbitration of the ICC: An Appraisal” (1990) 1 Amer. Rev. of Int’l Arb. 91 at 93.156 M. J. Mustill, “Arbitration: History and Background” (1989) 6 J. Int’l Arb. 43 at 49.

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study of the UNCITRAL Working Group on Arbitration which has suggested various

legislative and interpretative amendments to the New York Convention and the

UNCITRAL Model Law.157

Independently, for the last decade several authors have argued that online

arbitration is admissible even within the current regulatory framework.158 For instance,

they supported the opinion that it is possible to validly agree on arbitration through

electronic means, such as e-mail or by assenting to an offer on a website, to satisfy the

requirement that arbitration agreements be in writing. They claimed that arbitration

proceedings can be conducted, and arbitrators can deliberate, solely by electronic means.

They also held that arbitration awards can be issued in an electronic form, and such

electronically rendered arbitration awards are enforceable by national courts within the

existing legislative framework of international arbitration.

Even if the claim about admissibility of online arbitration is plausible, one could

not agree that the current legal framework endorses online dispute resolution. There is no

ODR law nor any other kind of government-type regulation of the ODR field at the

present time.159 Many countries currently lack any legislative instruments relating not

only to ODR but also to the Internet in general, including the basic legal infrastructure

recognizing the validity of electronic messages and providing equal treatment to users of

paper-based and computer-based information, let alone laws governing e-commerce, data

protection, etc. “The need for an appropriate legal framework that is supportive of and

conducive to the practice of e-commerce has been identified as a prerequisite for the

growth of e-commerce in general and ODR in particular.”160 Even in those countries that

adopted certain laws relating to electronic communications and e-commerce, ODR

157 See the information on the works of the UNCITRAL Working Group II, online: <http://www.uncitral.org/en-index.htm> and <http://ods-ddsback-ny.un.org/doc/UNDOC/LTD/V04/582/19/PDF/V0458219.pdf?OpenElement>.158 See, for instance, Richard Hill, “On-line Arbitration: Issues and Solutions” (1999) 15 Arb. Int’l. 199, available also online: <http://www.umass.edu/dispute/hill.htm>; Paul D. Carrington, “Virtual Arbitration” (2000) 15 Ohio St. J. on Disp. Resol. 669; and also: H. Yu & M. Nasir, “Can Online Arbitration Exist Within the Traditional Arbitration Framework?” (2003) 20 J. Int’l Arb. 455; Maurice Schellekens, “Online Arbitration and E-commerce” (2002) 9 Electronic Communication Law Review 113; Gerold Herrmann, “Some Legal E-flections on Online Arbitration (“cybitration”)” in: R. Briner, L. Y. Fortier, K. P. Berger, J. Bredow, eds., Law of International Business and Dispute Settlement in the 21st Century (Köln: Liber Amicorum Karl-Heinz Böckstiegel, 2001).159 Ponte and Cavenagh, supra note Error: Reference source not found at 136160 UNCTAD, supra note Error: Reference source not found.

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providers and users are faced with a patchwork of laws, and have to identify on their

own, through legal advice or ultimately costly court proceedings, which regulatory

scheme applies to their ODR process, and to what extent it applies.

This is a trite observation that the global and “a-territorial” nature of the Internet

complicates the application of traditional principles of law. While traditional territorial

and political boundaries have been used to define the scope of traditional laws, it is

difficult to apply those boundaries to digital information flows.161 It raises many

challenging legal issues, e.g., the lack of certainty over where the contract is concluded,

the location of contracting parties in different jurisdictions, and what is the law applicable

to the transaction. Neither legislatures nor courts have established a clear line of rules for

finding jurisdiction in online transaction cases. In this context, many authors have argued

that the necessity for an alternative system of dispute resolution that is unattached to any

specific jurisdiction “arises from the fundamental nature of the Internet itself.”162 They

have claimed – to cite Goodman – that “a key advantage of resolving disputes through

the use of [ODR] is that it avoids the issue of whether a particular court has jurisdiction

over the dispute. Since disputants can bind themselves to resolution through an

agreement, jurisdictional issues can be avoided altogether.”163 Yet one might consider this

opinion too simplistic: ODR programs do not operate in a legal vacuum whatsoever.164

Even if the parties agree to ODR (as illustrated in the following sections of this paper,

that is not always easy, especially once a dispute arose) and therefore avoid the problem

of which court has jurisdiction over a given dispute, they will not avoid several other

legal issues resulting from the lack of clear regulation and harmonization between

different jurisdictions.

It is not at all true that law does not apply to the Internet. Instead it is more

possible that too many laws from multiple jurisdictions apply and are in conflict with

each other. The Internet has never operated within a legal vacuum, but its development

161 Lessig, supra note Error: Reference source not found at 82.162 Almaguer and Baggott, supra note Error: Reference source not found at 712.163 Goodman, supra note Error: Reference source not found.164 The difficulties courts face resolving cross-jurisdictional Internet disputes may not apply to ODR process, which avoids jurisdictional questions. Although most out-of-court processes do not rely on substantive law in resolving disputes and thus avoids jurisdictional questions, they do operate “in the shadow of the law.” The question then arises: in the shadow of which law they operate – see: Katsh, Rifkin and Gaitenby, supra note Error: Reference source not found at 705.

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goes hand in hand with an uncertain regulatory environment. This presents numerous

legal – and regulatory – challenges. Many of them are unprecedented. Most importantly,

the Internet’s global nature undermines the traditional notion that legally significant

actions take place in a physical location.165 Arguably, these challenges prompt “a re-

assessment of the existing legal and regulatory models that may not fit within the

emerging technology.”166 Katsh argued that “our experience with cyberspace thus far has

taught us that we should not simply import our traditional ideas, practices, and

institutions to the online world.”167 Old legal concepts and standards may not be easily

transferable to online reality, and different innovative solutions may be required.

The landscape of dispute resolution is certainly evolving. The same applies to the

role of law as a primary modality of regulation. Time will tell if “in the complicated and

emerging environment of cyberspace […] the authority and role of the law in dispute

resolution processes will be less than it is offline.”168 While it is not certain whether the

role of law will actually diminish, it certainly seems possible that it will be different than

today. At the present time, however, in the field of dispute resolution, law remains the

most important modality of regulation.

Norms

“Norms” are a different kind of constraint on behaviour and modality of

regulation. Unlike “law” (legal norms), “norms” (social norms, informal social rules) are

imposed by a community, not by a state.169 Community members adhere to norms not

under compulsion of state powers and law enforcement, but due to an internalized sense

of duty, a fear of external non-legal sanctions, or both.170 The ODR stakeholders have

compiled and established numerous norms: guidelines, codes of conduct, model

165 Almaguer and Baggott, supra note Error: Reference source not found at 712.166 Lynch, supra note Error: Reference source not found at 348.167 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 812.168 ibid.169 Lessig explained the role of norms in the following way: “There may be no law against spitting, but that doesn’t mean you won’t be punished if you spit on the ground while standing in line at a movie. The punishment might not be harsh, though depending upon the community, it could easily be more harsh than many of the punishments imposed by the state.” – Lessig, supra note Error: Reference source not found at 122.170 Daniel B. Levin, “Building Social Norms on the Internet” (2001/2002) 4 Yale Symp. L. & Tech. 9 [Levin].

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contracts, trustmarks and reliability programs. Although they are not law, to some extent

they can mirror, mimic, supplement, and perhaps also replace law in regulating online

dispute resolution.

Societal customs have followed law throughout history in almost all judicial

systems171, now, they are also “built on the Internet.”172 Norms evolve in many settings

and contexts, and there is no single theory capable of explaining all of them.173 Almaguer

and Baggott argued that social norms are the macro “outgrowth of aggregate community

behaviour.”174 According to McAdams, norms arise because people derive some

independent utility from having good reputations, and thus both value and seek the

esteem of others.175 On the other hand, a norm exists “as long as the sanctions imposed on

violators of the norm create an expected cost for non-compliance that exceeds the

expected cost for compliance.”176

On the Internet, norms emerge under different circumstances than in the offline

world. As observed by Levin, “while the traditional notion of a community contemplates

people living or working or interacting in close proximity, in cyberspace members of a

community may live and work at great distance from each other and may share no

interactions outside of the Internet.”177 The lack of physical proximity and limited scope

of the Internet interactions, however, do not imply that Internet norms come into being

rarely, or that they must be less efficient as a means of regulation. Quite the contrary,

many authors have claimed that on the Internet customary practices (netiquette), as well

as private self-regulatory measures, are increasingly important.178

It was suggested that norms have a paramount role to play in the online

environment. These great expectations were referred particularly to building trust and

credibility among the users of the Internet in general, and ODR systems in particular,

171 Almaguer and Baggott, supra note Error: Reference source not found at 717.172 See, generally, Levin, supra note Error: Reference source not found.173 ibid.174 Almaguer and Baggott, supra note Error: Reference source not found at 719.175 Richard H. McAdams, “The Origin, Development, and Regulation of Norms” (1997) 96 Mich. L. Rev. 338 at 340.176 ibid. at 352.177 Levin, supra note Error: Reference source not found.178 Lynch, supra note Error: Reference source not found at 368.

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especially in light of the perceived ineffectiveness of traditional laws in cyberspace.179

The difficulty of regulating cyberspace through conventional state orientated means – as

suggested by Lynch – has resulted in “a new institutional framework combining a public

framework with private ordering.”180 It was pointed out that the Internet has its own

customs and usage that must shape dispute resolution in cyberspace.181 An out-of-court

mechanism, grounded in custom, was “a logical and natural step for the resolution of

disputes that arise on the Internet.”182 Customs relating to dispute resolution could be

recognized as a basis of law, perhaps, one day they could even achieve the status of legal

enforceability. The notion of international custom-based law, such as for instance the

Law Merchant of Medieval Europe183, could be (somewhat paradoxically) revitalized in

the Internet era.184

Based on such theoretical background, some experts have called for self-

regulation as a main regulatory vehicle for Internet dispute resolution. The self-regulation

approach suggests that ODR providers should endorse their own compliance with ODR

practice standards. This concept assumes that individual ODR providers would compete

with one another to provide their consumers with the best conflict resolution methods in

order to attract more clients. Those providers who do not meet the community’s

179 Almaguer and Baggott, supra note Error: Reference source not found at 716-717. The TRUSTE self-regulatory initiative was “designed in part to fill the vacuum of uncertainty created by the difficult issues of jurisdiction and choice of law in cyberspace” – Lynch, supra note Error: Reference source not found at 368.180 Lynch, supra note Error: Reference source not found at 368.181 Gloria Valencia-Weber, “Tribal Courts: Custom and Innovative Law” (1994) 24 N.M. L. Rev. 225 at 245.182 Almaguer and Baggott, supra note Error: Reference source not found at 719.183 The Law Merchant adjudicated disputes that arose from Medieval trade fairs. When resolving a dispute, the Law Merchant drew its power from an enforceable set of customary practices that were “reasonably uniform across all the jurisdictions involved in the trade fairs.” Although the enforceable customs and practices existed apart from the “ordinary rules of law that applied to non-merchant transactions” and no statute or other authoritative law gave rise to the existence of the Law Merchant , the Law Merchant’s decisions were final and enforceable, having power equal to that of a decision rendered in any commercial court. The appealing attributes of the Law Merchant were its speedy resolution of disputes, its practicality and its adaptability to changes. – Almaguer and Baggott, supra note Error: Reference source not found at 718 (citing I. Trotter Hardy, “The Proper Legal Regime for Cyberspace” (1994) 55 U. Pitt. L. Rev. 993 at 1020).184 Almaguer and Baggott, supra note Error: Reference source not found at 719 (arguing that “even though Internet commerce presents novel legal issues, those issues do not need a new and innovative solution; rather, what is needed is the revitalization of an old and currently unused solution – custom-based law.”)

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standards of quality, etc., would experience “cost for non-compliance” when their clients

choose other “better” providers.

However, some authors who generally supported the self-regulation model

expressed concerns that mere market forces might not suffice to ensure the optimal

regulatory framework for ODR, and therefore self-certification or certification programs

should be adopted.185 In the regulatory scheme proposed by the ABA Task Force, ODR

providers could voluntarily apply the Recommended Best Practices issued by the Task

Force186, and those who decide to do so would self-certify their good-faith compliance

with these standards. There would be no enforcing or supervisory body to ensure that an

ODR provider really complies with these principles in practice. Thus, there would be also

a risk that some providers certify themselves unfairly in order to attract more clients.

Certification programs have been intended to make up for such deficiencies in the

self-certification. To help provide more uniform ODR standards and ensure adequate

quality of ODR services, a specialized trustmark187 or seal program would be established.

Under such a program, a designated entity would certify that an ODR service provider

meets agreed-upon ODR standards and that it provides services of appropriate quality.

The lack of an ODR trustmark seal on an ODR provider’s website would be a clear signal

for consumers that the provider has failed to fulfill the standards.188 In the case of e-

commerce companies, trustmarks could attest to the availability of ODR if a dispute

arises. It was envisioned that e-companies would pay for these trustmarks to encourage

customers to do business with them, and that the revenue generated from the trustmarks

would fund the operation of the ODR services.189

Although theoretically promising, in practice self-certification and certification

programs for online dispute resolution turned out to be a failure.190 Their regulatory

value, if any, is highly debateable. Consumers quickly became confused about which 185 Ponte and Cavenagh, supra note Error: Reference source not found at 138.186 The American Bar Association Task Force on E-Commerce and ADR, “Final Report and Recommended Best Practices”, online: <http://www.abanet.org/dispute/webpolicy.html#2>.187 Trustmarks were visualized as graphical logos placed on the websites of e-commerce companies or ODR providers ensuring that a certain baseline quality assurance standard had been met.188 Ponte and Cavenagh, supra note Error: Reference source not found at 138.189 UNCTAD, supra note Error: Reference source not found.190 Trustmark programs have made a greater success in other fields. For example, fairly widely recognized trustmark programs have been established for general online business practices (e.g. BBBOnline Reliability Seal ) and protection of personal data on the Internet (e.g. BBBOnline Privacy Seal).

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trustmark proved what, when ODR providers started using the wide variety of trustmark

and seal programs.191 As of July 2005, SmartSettle has no trustmark on its website.

Cybersettle posted three different logos/trustmarks, namely: “Exclusive Online

Settlement Tool – Association of Trial Lawyers of America”, “Partnership for Justice –

NYSTLA – Business Insurance – Best of the Web” and “The Academy of Florida Trial

Lawyers – Business Friend of Eagle.” SquareTrade offers its own “seal services.”

Other norms regulating online dispute resolution come from diverse guidelines,

action plans, codes of conducts, best practices and other “soft law” documents adopted by

several domestic and international organizations in recent years. Most often they are not

specifically aimed at ODR providers, but simply recommend fast, impartial, affordable,

and effective dispute resolution mechanisms for disputes that arise on the Internet. As

early as 1999, the OECD Consumer Policy Committee, in cooperation with a group of

business and consumer bodies, drafted “Guidelines on Consumer Protection in the

Context of Electronic Commerce.”192 In these Guidelines the determination of OECD

Member States’ governments was declared to encourage “the participation of consumer

representatives in the development of effective self-regulatory mechanisms that contain

specific, substantive rules for dispute resolution.”193 A few months later, in July 2000,

leaders of the G-8 countries endorsed the OECD Guidelines in the Okinawa Charter on

Global Information Society.194 In 2001, the American Arbitration Association (AAA)

announced the eCommerce Dispute Management Protocol offering basic principles for

resolving B2B conflicts.195 The AAA has also developed Supplementary Procedures for

Online Arbitration to aid the use of arbitration over the Internet. In July 2002, the

International Chamber of Commerce prepared a Global Action Plan for Electronic

Business aimed at promoting the development of electronic commerce and the adoption

191 UNCTAD, supra note Error: Reference source not found.192 Organisation for Economic Co-operation and Development, “OECD Guidelines for Consumer Protection in the Context of Electronic Commerce” (1999), online: <http://www.oecd.org/document/51/0,2340,en_2649_34267_1824435_1_1_1_1,00.html>.193 Organisation for Economic Co-operation and Development, “OECD Guidelines for Consumer Protection in the Context of Electronic Commerce” (1999), Part III: Implementation.194 University of Toronto G8 Information Center, “Okinawa Charter on Global Information Society”, online: <http://www.g8.utoronto.ca/summit/2000okinawa/gis.htm>.195 American Arbitration Association, “B2B eCommerce Dispute Management Protocol”, online: <http://www.adr.org/sp.asp?id=22049>.

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of adequate online dispute resolution mechanisms.196 Then, at the end of 2002, the ABA

Task Force released its Final Report and Recommended Best Practices for ODR Service

Providers. These Recommended Best Practices focused primarily on proper disclosure

about an ODR service provider’s conflicts of interest, credentials and training, funding

sources, security measures, and privacy and confidentiality measures.

The overall balance of these self-regulatory efforts is arguably unsatisfactory. No

uniform national or international guidelines or standards of practice for ODR have been

identified or adopted.197 Thus far, the self-regulation approach to online dispute resolution

provided Internet users with too little guidance, and even in certain circumstances led to

public confusion about ODR standards and diverse certificates of compliance.198 In this

context, the suggestion that every “online dispute resolver must follow a professional

code and clearly state which code is being followed before the parties agree to proceed

with the process”199 has become difficult to fulfill. It seems that some “private industry

based self-regulatory initiatives have been established with the goal of minimizing

government regulation”200 rather than ensuring high quality of dispute resolution services.

Thus far diverse self-regulatory initiatives could not make up for the lack of

comprehensive legal regulation. “Norms” have not been capable of replacing law as a

primary modality of ODR regulation.

Market

Market is another modality of online dispute resolution regulation. In the simplest

analytical model, markets constrain behaviour through price.201 If the price of gasoline

rises dramatically, people will drive less. Similarly, if the price of a new product, say

ODR services, is too high, the product will not become popular. To get a full picture of

how market can shape behaviour, we have to answer several additional questions, for

example whether a given market is competitive or non-competitive, local or international,

196 ICC Commission on E-Business, IT and Telecoms, online: <http://www.iccwbo.org/home/e_business/commission.asp>.197 Ponte and Cavenagh, supra note Error: Reference source not found at 131198 ibid. at 138.199 Katsh and Rifkin, supra note Error: Reference source not found at 160200 Lynch, supra note Error: Reference source not found at 368.201 Ann E. Carlson, “Recycling Norms” (2001) 89 Calif. L. Rev. 1231 at 1253.

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includes many or only a few sellers and buyers, has “free” or difficult entry, and whether

its participants have adequate or insufficient information, etc. Although dispute

resolution services are very different from gasoline and many other products and services

people consume on a daily basis, economists and lawyers often assume a market for

dispute resolution does exist.202 This chapter examines the role of market in the regulatory

framework of ODR in three different contexts: a global electronic marketplace created by

the Internet, a market for dispute resolution in general, and – finally and most importantly

– the emerging market for ODR services itself.

B2C e-commerce alone was worth an estimated $250 billion by the end of 2003.

Some authors have claimed that the lack of effective dispute resolution on the Internet

was hindering its even more dynamic growth.203 We hear repeatedly that due to

increasing use of the Internet worldwide, the number of disputes arising from Internet

commerce is on the rise. In this context, one might come to an accurate conclusion that

the market for dispute resolution on the Internet, and the phenomenon of ODR by and

large, is lagging behind. Or, if they prefer to see the glass half-full rather than half-empty,

the success of ODR appears surprisingly modest in light of the spectacular development

of electronic commerce. Having said that, full statistics on the ODR market are difficult

to establish, on the one hand, due to the fact that most dispute resolution processes are

confidential204, and on the other hand, arguably, because only a few ODR providers have

generated such results they would like to announce publicly.

202 Steven Shavell, “Alternative Dispute Resolution: An Economic Analysis” (1995) 24 Journal of Legal Studies 1; Bruce L. Hay, “Symposium on Alternative Dispute Resolution: Procedural Justice – Ex Ante vs. Ex Post” (1997) 44 UCLA Law Review 1803; or Keith N. Hylton, “Agreements to Waive or to Arbitrate Legal Claims: An Economic Analysis” (2000) 8 S. Ct. Econ. Rev. 209. We often presume that disputants are free to choose the way to resolve the dispute in a way that suits their needs: they can ‘fit the forum to the fuss’. “The idea of disputants’ choice is widespread in the ADR literature, where self-determination is a core belief. However, it also underlies thinking about civil procedure. The autonomy of the parties is one of the basic values reflected in most civil procedure systems” – Maurits Barendrecht and Berend de Vries, “Fitting the Forum to the Fuss with Sticky Defaults: Failure on the Market for Dispute Resolution Services?” (June 2004), online: <http://ssrn.com/abstract=572042> [Barendrecht and de Vries].203 Llewellyn Joseph Gibbons, “Creating a Market for Justice; a Market Incentive Solution to Regulating the Playing Field: Judicial Deference, Judicial Review, Due Process, and Fair Play in Online Consumer Arbitration” (2002) 23 NW. J. Int’l L. & Bus. 1 at 2 and Consumer 2001 at 51 [Gibbons] (noting that “the lack of effective consumer redress when the parties are in different countries is a major barrier to consumer confidence in dealing with all but the most well-known and trusted brands”).204 Due to this reason, for instance, although we know that there are more than twenty-five providers of online mediation, the number of cases they actually resolve is unclear – Schultz, Does Online, supra note Error: Reference source not found at 74.

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The first ODR enterprises were established in 1996. Several websites were set up

to help resolve Internet disputes in the following years, especially in 1999 and 2000, at

the peak of the first Internet boom. A difficult investment environment for all Internet

related companies throughout 2001 and 2002 saw the end of many of these initiatives. As

surveyed by Tyler and Bretherton, of the 76 ODR websites established between 1996 and

2004, only 57 are still active.205

Chart 3.1

Year of Launch of ODR Enterprises206

The level of activity of the existing initiatives is not always easy to assess, but the

fact that many of them have ceased updating their websites must be meaningful. As for

more detailed statistics, Schulz counted there are more than twenty-five providers of

online arbitration, but most of them have difficulty getting cases.207 In so-called non-

binding online arbitration, the caseloads are generally not much higher, except for the

providers applying the Uniform Domain Name Dispute Resolution Policy (“UDRP”),

under which approximately 10,000 cases have been resolved.208 Cybermediation using

205 Melissa Conley Tyler and Di Bretherton, “Seventy-six and counting: an analysis of ODR Sites” in Ethan Katsh and Daewon Choi (eds.), Online Dispute Resolution (ODR): Technology as the “Fourth Party”. Papers and Proceedings of the 2003 United Nations Forum on ODR (2003), online: <http://www.odr.info/unece2003/pdf/Tyler.pdf> [Tyler and Bretherton].206 ibid.207 According to Schulz, the most successful provider of online binding arbitration is the Chartered Institute of Arbitrators in London, which has handled approximately 400 cases, primarily in the field of B2C –Schultz, Does Online, supra note Error: Reference source not found at 75.208 ibid.

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sophisticated software and traditional mediation using online technologies appear to have

had more limited success thus far.209

ODR projects have grown from a number of environments, including government

and international bodies, academia, consumer rights groups, business organisations and

entrepreneurial start-up dom.coms. “They have been motivated by both business

opportunities and a sense of social need.”210 Probably the most successful ODR site to

date is SquareTrade, which primarily handles conflicts between traders of the online

auction site eBay. SquareTrade is privately held and funded by professional investment

institutions including: Argus Capital, Partners of Clayton Dubilier Rice, GIP Partners and

Isis Capital, and individual investors.211 Many other ODR providers are privately held

(e.g. SmartSettle, ICourtHouse212, DRS (Dispute Resolution Services) LP213), however,

most of them do not disclose information about their shareholders. The lack of full

information about companies providing dispute resolution services raises significant

concerns. For instance, Cybersettle, which has been – as noted by Rule – “the most

prominent company in bringing ODR to the attention of the insurance industry” (since

1998 Cybersettle has handled more than 100,000 transactions, facilitating settlements for

more than $750 million), had as its earliest investor an offshore reinsurance company.214

Arguably, this fact resulted in a perceived connection of Cybersettle to the insurance

company side of the industry.

Several projects were based on grants and government funding. The European

Union gave a lead by establishing such initiatives as European Extra-Judicial Network

for cross-border dispute resolution (EEJ-NET)215, an ADR/ODR general clearing house,

209 Goodman, supra note Error: Reference source not found.210 Tyler and Bretherton, supra note Error: Reference source not found.211 http://www.squaretrade.com212 http://www.i-courthouse.com213 DRS claims to be “North America’s most comprehensive ADR service provider” – online: <http://www.drs-adr.com/novaforum_revised.php>.214 See: Cybersettle, “Cybersettle Fact Sheet”, online: <http://www.cybersettle.com/about/factsheet.asp> and Rule, supra note Error: Reference source not found at 142-143. Rule estimated that this sector is worth $15 billion. He also explained that the insurance industry is the largest user of automated dispute resolution mechanisms. Many insurance cases come down to a monetary amount, and can be effectively resolved by blind-biding mechanisms. As he noted, most insurance industry executives “will have heard of Cybersettle if they have heard of ODR at all.”.215 European Extra-Judician Network for Cross-Border Dispute Resolution, online: <http://www.eejnet.org>.

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and its financial counterpart FIN-NET216, which deals with financial disputes.217 Two

recent EU-funded ODR projects are CCform218, launched in early 2004, and Electronic

Consumer Dispute Resolution (ECODIR) providing a mechanism similar to

SquareTrade219, yet on a pilot basis and free of charge for both business and consumers.

ODR services provided entirely free of charge are quite exceptional.220 The survey

conducted by Tyler and Bretherton showed that user fees, which can take a number of

forms such as: administration and filing fees, hourly rates, a percentage of settlement

reached, or a per round bidding fee (in automated negotiation only), have been the

predominant funding mechanism for ODR.

Chart 3.2

Funding Sources221

Compared with other dispute resolution methods, by and large, fees charged by

ODR providers appear attractive.222 For example, SquareTrade’s initial resolution process

of assisted direct negotiation is offered free of charge, and if parties require a mediator, in

most cases they would be charged only $20,223 which is undoubtedly a substantially lower

sum than that charged by for-profit offline ADR providers. Substantial cost savings may 216 FinNet, online: <http://finnet.jrc.it/en/>.217 Lodder and Zeleznikow, supra note Error: Reference source not found at 299-300.218 CCForm Online Complaints Platform, online: <http://ccform.interbyte.be/>.219 Electronic Consumer Dispute Resolution, online: <http://www.ecodir.org>. See also Brian Hutchinson, “Online Resolution of Consumer Disputes – An Introduction to ECODIR: Electronic Consumer Dispute Resolution” (2002) (paper presented at the 2002 UNECE Forum on ODR).220 Mediate-net, Cybertribunal, Online Ombuds and The Virtual Magistrate have also offered ODR for no cost, usually on a pilot basis, supported through philanthropic or academic funding. These services usually cease once the initial funding is exhausted.221 Tyler and Bretherton, supra note Error: Reference source not found.222 ibid.

44

result not only due to the lower fees, but also because ODR providers usually do not

require parties to pay for additional expenses such as long-distance phone calls or

teleconferencing.224 For some other ODR providers, however, possible savings (if any)

are much lower. MARS (Mediation Arbitration Resolution Services), for example,

requires a payment of $100 conference scheduling and set-up charge (each party) and

$125 for each conference hour (each party).225 Undisputedly, with the current fees that

such websites are charging, it is likely that their services are out of reach for many

Internet disputes.226

Some platforms offer ODR services for a lower cost or free to one party only, a

consumer. Such projects are usually funded by business memberships.227 While some

authors have criticised business membership providers as potentially compromising their

independence in dealing with consumer disputes228, others accept the loss of

independence of ODR services funded by business as a trade-off for consumer access,

provided that transparency is maintained and mechanisms to ensure impartiality are put

in place.229

The ODR market appears international in terms of geographic distribution of

ODR enterprises. While the first ODR enterprises were set in North America, the number

of projects developed on other continents, especially in Europe and Asia, is growing.

Although the first Australian ODR sites were launched in 2002,230 the Antipodes have

already made their contribution to ODR scholarship and practice.231 In 2003 and 2004,

223 Steve Abernethy, “Building Large-Scale Online Dispute Resolution & Trustmark Systems”, ODR 2003, online: <http://www.odr.info/unece2003/pdf/Abernethy.pdf> [Abernethy].224 See: Friedman, supra note Error: Reference source not found at 712 and Hang, supra note Error:Reference source not found at 855.225 See: ResolveMyDispute, online: <http://www.resolvemydispute.com/>.226 Goodman, supra note Error: Reference source not found.227 For example, NovaForum’s market model has been based on subscriber-fees. See generally Tyler and Bretherton, supra note Error: Reference source not found.228 Consumers International, “Disputes in Cyberspace 2001. Update of online dispute resolution for consumers in cross-border disputes”, online: <http://www.consumersinternational.org> [Consumers 2001].229 Department of Commerce, Federal Trade Commission, “Joint Workshop on Alternative Dispute Resolution for Online Consumer Transactions”, June 6 and 7, 2000, online: <http://www.ftc.gov/bcp/altdisresolution/> [Department of Commerce].230 Tyler and Bretherton, supra note Error: Reference source not found.231 It is enough to say that the last 2004 UN Forum on Online Dispute Resolution was held in Melbourne with a majority of speakers coming from Australia.

45

new projects were launched in Sri Lanka232 and the Philippines.233 In China, “the idea of

mediating disputes online has captured the imagination of the dispute resolution

profession” and first experiments are now underway.234 On the other hand, the lack of

ODR enterprises in some parts of the world reflects the problem of the global digital

divide.235

Chart 3.3

Geographic Distribution of ODR Enterprises236

It is debatable whether available ODR processes sufficiently accommodate for

and facilitate diverse cultural issues between parties in the international environment.

Rao suggested that there is a “cultural vacuum in online dispute resolution.”237 Almost

70% of ODR providers offer their services solely in English, whereas only 32.8% of

Internet users speak English.238 Out of the 76 sites surveyed by Tyler and Bretherton: 61

232 Info Share, online: <http://www.info-share.org/doc_view.php?record_id=1&cat=2_0>.233 The Cyberspace Policy Center for Asia-Pacific and Philippine MultiDoor Courthouse, online: <http://www.disputeresolution.ph/about.asp>.234 Xue Hong, “Online Dispute Resolution in China: Present Practices & Future Development” in: Ethan Katsh, and Daewon Choi (eds.), Online Dispute Resolution (ODR): Technology as the “Fourth Party”. Papers and Proceedings of the 2003 United Nations Forum on ODR (2003), online: <http://www.odr.info/unece2003/pdf/hong.pdf>.235 There is only one ODR provider in South America (See: <http://www.cibertribunalperuano.org>) and none in Africa. Respectively, only 4% of the world’s online population are in South America, and 1.5% in Africa – Tania Sourdin, “ODR – An Australian perspective on the digital divide”, online: <http://www.odr.info/unforum2004/Sourdin1.doc> and “Internet Usage Statistics for Africa”, online: <http://www.internetworldstats.com/stats1.htm>.236 Tyler and Bretherton, supra note Error: Reference source not found.237 Sharanya Rao, “The Cultural Vacuum in Online Dispute Resolution”, online: <www.odr.info/unforum2004/rao.htm>.238 “Internet Users By Language: Top 10 Languages Used in the Internet”, online: <http://www.internetworldstats.com/stats7.htm>.

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were monolingual (53 English only), nine were offering services in two languages

(English plus Spanish, French or Chinese), and six offered services in three languages or

more.239 The majority of multilingual ODR projects are funded by the European Union.

Ccform, for example, as of July 2005, facilitates online resolution of standard consumer

complaints in all the official languages of the “old” European Union.240 Although

providing translation into less common languages is cost-consuming, it seems important

for sparking wider interest in ODR.

The results of a survey conducted by Tyler showed a surprisingly high level of

public interest in and demand for online ADR: more than 70% of total respondents would

be willing to consider ODR both for general disputes and for disputes with an online

company. What comes as no surprise, daily and weekly computer users and people who

use banking and auction sites are most likely to use ODR.241 For e-commerce

entrepreneurs, online dispute resolution is attractive as something that can be

incorporated into their new ventures as part of an overall strategy to manage disputes, and

build trust among their clients.242 For consumers, ODR is an important and desirable tool

of redress in e-commerce.243 On the other hand, these declarations go hand in hand with a

lot of unfamiliarity with even basic aspects concerning ODR. Although the product

named “online (or Internet, cyber-, virtual-) dispute resolution” seems appealing to an

average Internet user, only few would know what ODR actually means, who provides

ODR, and how to recognize which program works well. Therefore, notwithstanding

significant advantages offered by online dispute resolution to both businesses and

consumers, ODR systems have not been used to any great extent by either side. Even

multilingual EU-funded projects have not been very successful in attracting consumers

and businesses to their services.244 Certainly, one of the reasons for this discrepancy

between reported preferences for ODR and actual use lies in the challenge involved in

generating awareness and sufficient knowledge of, and finally building up confidence in, 239 Tyler and Bretherton, supra note Error: Reference source not found.240 As of July 2005 CCform supports eleven languages. See: <http://ccform.interbyte.be/>.241 Melissa Conley Tyler, “ODR: The Australian Experience” in: Ethan Katsh and Choi, Daewon (eds.) Online Dispute Resolution (ODR): Technology as the “Fourth Party”. Papers and Proceedings of the 2003 United Nations Forum on ODR (2003), online: <http://www.odr.info/unece2003/pdf/tyler1.pdf>.242 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 814.243 Consumers 2001, supra note Error: Reference source not found at 15.244 Lodder and Zeleznikow, supra note Error: Reference source not found at 299-300.

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the use of ODR.245 One might also argue that the idea of fast and accessible dispute

resolution procedures available online, the concept of the fourth party, etc., are against

monetary and other interests of lawyers. They have always had a big say in the way a

dispute is handled, and now ODR, more than ADR, gives them a feeling of loss of

control.

Furthermore, the rate of growth in the deployment of ODR has been slowed by

high costs of building and implementing appropriate computer systems.246 Technically

sophisticated ODR platforms, and business methods relating to them, have become

highly valued commercial assets, increasingly often protected under patent law.247 The

market for ODR technology (tied up with the market for ODR services) seems to be

relatively small, and a pursuit to develop a new platform is a difficult one.

Another explanation for “moderate success being moderate failure of ODR”

concerns some specific features of the market for dispute resolution services in general.

As argued by Barendrecht and de Vries, the default rule for dispute resolution is “sticky”,

which results in the fact that defaults attract the vast majority of disputes. It is very

difficult for disputants to opt out of the default, and to “buy” a neutral dispute resolution

service of a type, quality, and price that suits their preferences. The barriers to getting the

optimal dispute resolution procedure are diverse. In many aspects, the providers of

traditional default dispute resolution services, such as courts and lawyers, are effectively

shielded from competition.248 As for the disputants themselves, it is not very realistic that

while having difficulties with communication and trust, they would agree to an unknown

procedure to resolve their dispute: “people actually do not fit the forum to the fuss ex

post.”249 Barendrecht and de Vries claim that the very existence of compulsory or court-

annexed arbitration and mediation schemes proves to a large extent that ex post choice is

difficult in this area: without such pressure many disputants would be unable to find their

245 Graham Ross, “Online Dispute Resolution and Business”, online: <http://www.odr.info/unforum2004/ross.htm>.246 UNCTAD, supra note Error: Reference source not found.247 For instance, Cybersettle holds US Patent # 6,330,551 for the “Computerized Dispute Resolution System and Method.” – “What is Cybersettle?”, online: <http://www.cybersettle.com/>.248 Barendrecht and de Vries, supra note Error: Reference source not found.249 ibid. (noting that the barriers to jointly decide on a dispute resolution procedure are likely to be substantial, and similar to the barriers to solving the dispute itself.)

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way to a procedure that best suits their interests.250 Court-annexed ADR programs aim at

assisting people to determine the best way to resolve a dispute.251 It seems plausible not

only to include ODR in court-annexed ADR schemes, but also to make online dispute

resolution the default for most Internet disputes. Most scholars agree that a default rule

for dispute resolution should reflect the preferences of the majority of the parties, and one

“should not be deceived by the present use of dispute resolution services: they do not

necessarily show what the preferences of disputants are.”252

The reasons why the ODR phenomenon has not repeated the dazzling success of

e-commerce so far lie both on the supply (ODR providers) and demand (ODR users)

sides of the ODR market. Given the limited number of active ODR projects and a wide

range of prices for comparable services, the ODR market is neither competitive nor

effective.253 In this sense, it seems to be a relatively weak modality of regulation. It is

increasingly international, but still suffers from concentration on the most developed e-

markets which – due to restraints of the offline world, such as high costs of shipping,

custom duties, etc. – remain geographically limited. ODR services are provided only in

English and a few other most popular languages. Entry into the market, on the supply

side, is difficult. The market is also “difficult” itself: suppliers are expected to answer

highly diversified needs and requests. For the largest ODR provider, SquareTrade,

dispute values have ranged from under 1 USD to over 1 million USD.254 Since online

disputes typically concern small sums of money, the cost of ODR is an important

250 ibid. Barendrecht and de Vries argue further that an alternative explanation for compulsory arbitration and mandatory mediation schemes, which they cannot be ruled out a priori, would be that such programs are merely intended to diminish court congestion. If this were the main reason though, they would expect more opposition from disputants.251 “The ideal of a multi-door courthouse, however, a neutral referral point to appropriate dispute resolution without a default option, is far off.” – ibid. See also: Frank E.A. Sander, “Varieties of Dispute Processing, Address Delivered at the National Conference on the Causes of Popular Dissatisfaction with the Administration of Justice (Apr. 7-9, 1976)” (1976) 70 Federal Rules Decisions 111; Jeffrey W. Stempel, “Reflections on Judicial ADR and the Multi-Door Courthouse at Twenty: Fait Accompli, Failed Overture, or Fledgling Adulthood?” (1996) 11 Ohio St. J. on Disp. Resol. 297.252 Barendrecht and de Vries, supra note Error: Reference source not found.253 Either there is little competition or some clients do not know that they can get the same product elsewhere for a substantially lower price. The latter seems to be at least partly supported by an observation made by Tyler and Bretherton: “For those providers that have not attracted business, the fees charged do not appear to be the problem: their fees are not notably more than for successful enterprises.”254 Abernethy, supra note Error: Reference source not found.

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consideration. Even the relatively modest fees may still be out of reach for many

individuals involved in e-commerce disputes.

There are a huge number of individuals and business entities that could enter the

ODR market’s demand side. These are numerous online shoppers, often dissatisfied with

the results of small and big deals they seek to make on the Internet. Since their disputes

are frequently low dollar value disputes that involve parties who are geographically

distant from one another, it is most likely that in the absence of ODR services, these

buyers would not pursue their grievances at all. Thus, most of them express interest in

and demand for online dispute resolution, yet experience significant difficulties even

when only seeking to get full and adequate information about the services available.

Given that people are not used to “buying” dispute resolution services on a daily basis,

the default (offline) options are stronger than for regular products. So far, the

development of the ODR market has been hampered mostly by deficiencies in the supply

of ODR services. Notwithstanding all these obstacles, the ODR phenomenon

indisputably has great potential for growth, and as the Internet and e-commerce grow, the

ODR market should develop as well.

Technology

If regulation in cyberspace is different than in the real world, to a large extent this

difference stems from the specific role played by technology.255 If a regulator wants to

induce certain behaviour in the online environment, they need not threaten, or cajole, to

inspire the change. In many instances what they need is to change what Lawrence Lessig

has called “the code”, the software that defines the terms upon which the individual can

gain access to the computer system or use the system.256 On the Internet, increasingly,

255 In some writings Lessig referred to the broader term “architecture” which means physical constraints on human behaviour. As Lessig puts it, “a fallen bridge might constrain your ability to get across a river. Railroad tracks might constrain the ability of a community to integrate its social life... If a 500-pound boulder blocks your way, it is the law of gravity that enforces this constraint.” – Lessig, supra note Error:Reference source not found at 122.256 Lessig explained that in cyberspace if the regulator wants to limit trespass on a system, they need not rely simply on a law against trespass; they can implement a system of passwords. If they want to limit the illegal use of copyrighted material, they need not rely on the threat of copyright law; they can encrypt the copyrighted material so only those intended to have access will have access. Increasingly, there is a code (as in software) to assure what the code (as in law) demands – Lawrence Lessig, “Surveying Law and Borders: The Zones of Cyberspace” (1996) 48 Stan. L. Rev. 1403 at 1408.

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rules are enforced not by a human but by a machine. Such code is an efficient means of

regulation: often one obeys it not because one should, but one can do nothing else. As put

by Lessig: “there is no choice about whether to yield to the demand for a password; one

complies if one wants to enter the system.”257

The importance of technology as a modality of ODR regulation is growing. While

ODR is still in an early stage of its development and software applications for dispute

resolution are emerging relatively slowly, the eBay experience has demonstrated that

ODR can respond to large numbers of disputes if only appropriate software is available258

(We can also assume it will be able to respond to more and more complex disputes, and

do it in a more and more refined way, when appropriate software is available). As

illustrated throughout this section, step by step, the rules of dispute resolution get built

into the technology that operates ODR platforms. Machines are taught how to suggest to

humans fair win-win solutions in human disputes. Software is designed to support, and in

certain instances replace, “live” neutrals. Although Lessig’s words: “it is code, rather

than law, that rules”259 still fit better in the context of digital copyrights management and

“anti-circumvention measures” than the world of online dispute resolution, the role of

technology in ODR must not be underestimated.

It appears undisputed that if ODR technology is thoughtfully designed and

applied, it can be an essential component in helping parties reach optimal resolutions to

their disputes. On the other hand, if it is poorly designed and misapplied, it can be a

major obstacle to reaching agreement.260 Technology being applied for online dispute

resolution, like every other technology, is Janus-faced.261 Just as a stethoscope can be

used to hear a beating heart in crisis or to crack a safe, ODR platforms can be used to

provide access to good and bad, or true and fake justice.

257 Lessig concluded that “in the well implemented system, there is no civil disobedience. Law as code is a start to the perfect technology of justice.” – ibid. at 1408.258 Katsh, Bringing Online, supra note Error: Reference source not found at 286.259 “And the problem with code regulations is that, unlike law, code has no shame.” – Lessig, supra note Error: Reference source not found at 148.260 Rule, supra note Error: Reference source not found at 60.261 Janus was a Roman god who protected doors and gateways. The god is typically represented in art with two faces looking in different directions, symbolic of entrances and departures through the gateway. Janus also represented beginnings, thus the first month of our year is named ‘January’.

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In their 2001 book, Ethan Katsh and Janet Rifkin introduced the concept of

technology as the “fourth party”. While neutrals are often referred to as “third parties” in

a dispute (in addition to two sides in a dispute262), in a metaphorical sense, technology

can become the fourth party. The metaphor suggests that the novel element in ODR may

be less the online connection to a human third party than the link to technology that can

help parties reach agreement.263 It is a trite observation that the “fourth party” concept

appears much more appealing when it is referred to refined computer applications than in

the context of relatively simple tools such as e-mail or instant messaging. In each case

however, in the absence of a face-to-face encounter, ODR technology frames the back

and forth communication and provides a structure and format that allows parties to

participate in ODR.264 Therefore, there is no clear threshold for the role of technology as

the fourth party. Just as the role of the third party can vary in different contexts, so can

the role of the fourth party. In different circumstances, it can be more or less relied upon

and be more or less influential.265 In some instances, it will encroach upon and displace

techniques employed by third parties, and in other situations will enhance third party

capabilities.266 As noted by Katsh, the fourth party “can assume responsibilities for

various communications with the parties, and the manner in which the third and fourth

parties interact with each other will affect many parts of the dispute resolution process.”

Even if the fourth party may not be equal in influence to the third-party neutral (yet), “it

can be an ally, collaborator, and partner.”267

The fourth party’s role in dispute resolution is based on a profound belief that

finding a resolution and maximizing benefits for all participants can be, and should be, a

rational and well structured process. Once the parties figure out all key issues in their

dispute, and rank their interests in terms of priority (increasingly often it also happens

with help of the fourth party), such information should easily be translatable to the

language of computers. Given that computers can handle mathematical algorithms – in a 262 Even when there is a multi-party dispute with many disputants, ADR is still commonly thought to be three sided, with all of the disputants grouped together as the two disputants, and joined the third party, the mediator or arbitrator.263 Katsh, Bringing Online, supra note Error: Reference source not found at 284.264 ibid. at 279.265 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 820.266 Katsh, Bringing Online, supra note Error: Reference source not found at 286-289.267 Katsh, Online Dispute Resolution, supra note Error: Reference source not found at 820.

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sense – better than humans, they could potentially provide more effective proposals to

resolve the dispute. Of course, mathematical approaches to dispute resolution has a much

longer tradition: game theorists and economists tried to use numbers to illustrate the

dynamics of negotiations long before the Internet was widely used.268 As observed by

Rule, “the point of these efforts was to distribute the pie as efficiently as possible. The

algorithms allowed parties to claim value that might have been left on the table without

the accurate calculations of the computer.”269 In addition, while mediators are often

reluctant to suggest possible resolutions to disputants because it may put them in the

situation of advocating a particular solution to the dispute, computers are less concerned

with such problems.270 As a result of this dynamic, solution set databases are often

integrated into ODR systems. In the simplest models, the system would merely ask

disputants what type of dispute they are engaged in, and then display a list of common

resolutions to a given type of dispute. In their advanced incarnations, the systems are able

to learn themselves: new dispute types and new perfected resolutions can be continuously

added.271

The most sophisticated fourth parties currently in use are the multivariable

resolution optimization programs.272 These highly structured and technologically

sophisticated ODR systems are based on a simple assumption that “a problem well-

defined is half-solved.”273 They gather detailed information about all of the issues in a

dispute (in particular, clarify parties’ interests and distinguish them from parties’

positions), and organize them according to their relative importance. The issues are

identified along with associated variables that may be measured or optioned, and related

to each other with constraints or formulas.274 Once the value of swaps between the

268 For example, Ernest Thiessen, the later founder of SmartSettle, wrote a paper about technology-assisted decision-making in water resource disputes in 1983.269 Rule, supra note Error: Reference source not found at 24.270 ibid. 56271 One system of this kind is being used by SquareTrade, the ODR provider working with eBay – ibid.272 ibid. at 58.273 This saying is commonly attributed to John Dewey (see for example: “Great Quotes”, online: http://www.henrywagner.org/quotes/quotes.htm), although Thiessen & Zeleznikow gave credits to Earl Nightingale – Ernest Thiessen & John Zeleznikow, “Technical Aspects of ODR: Challenges and Opportunities”, online: <http://www.odr.info/unforum2004/thiessen_zeleznikow.htm> [Thiessen and Zeleznikow].274 Thiessen and Zeleznikow, supra note Error: Reference source not found.

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different items is calculated, the systems can generate proposals to be accepted by each

side and then presented to the other side. After a series of proposals and participants’

answers, “armed with all the relative preference and valuation data from both sides, the

platform can deliver a mathematically optimal solution to the dispute, maximizing the

benefit that can be achieved for both parties based on the preferences they registered.

This is the best resolution that can be achieved” – Rule concludes – “something that no

human mediator or arbitrator could ever identify without the assistance of technology.”275

Currently, only a few ODR systems elicit detailed user preferences and offer

comprehensive analytical support.276 According to Thiessen and Zeleznikow,

SmartSettle277 (a Canadian company based in Abbotsford, British Columbia) offers the

most comprehensive support with features including preferred outcomes, bargaining

ranges, satisfaction functions, tradeoffs, issue importance and package ratings.

SmartSettle assists parties to overcome the challenges of conventional negotiation

through a range of analytical tools to clarify interests, identify tradeoffs, recognize party

satisfaction, and generate optimal solutions.278 The aim is to help parties better prepare

for negotiation and to support them during the negotiation process in quickly reaching an

outcome that is both fair and efficient. SmartSettle has demonstrated the benefits of this

analytical support in research and has begun to do so in application to real cases. 279 Its

system represents one of the most intriguing aspects of ODR: it provides possibilities

which are not available in face-to-face dispute resolution.280

It does not imply however that the fourth party could easily replace a third party.

SmartSettle still advises disputants to work with a human mediator who administers the

program. As one reason Rule mentioned that although SmartSettle “has come a long way

toward user-friendliness over the years”, its interface is still too complicated for the

275 Rule, supra note Error: Reference source not found at 58.276 For example, systems such as Family_Winner, Inspire, SmartSettle, Negoisst and SmartSettle that provide a high degree of analytical support to enhance negotiation, and provide parties with a highly structured environment – Thiessen and Zeleznikow, supra note Error: Reference source not found.277 See SmartSettle, online: <http://www.smartsettle.com>.278 Ernest M. Thiessen and Joseph P. McMahon, “Beyond Win-Win in Cyberspace” (2000) 15 Ohio St. J. on Disp. Resol. 643 [Thiessen and McMahon].279 Thiessen and Zeleznikow, supra note Error: Reference source not found.280 Thiessen and McMahon, supra note Error: Reference source not found.

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average user to easily operate.281 This will not remain an insuperable obstacle in the long

run though. Most commentators are convinced that it is just a matter of time and

“eventually technology such as SmartSettle will be repackaged in a way that is simple

and user-friendly, and such tools may revolutionize dispute resolution.”282 Nonetheless,

so far the fourth party has been quite rarely placed in a position to “replace” the third

party. Rather, it has been considered to support or to “displace” the third party in the

sense that new skills, knowledge, and strategies may be needed by the third party.283 Yet,

again, as technology is perfected, the fourth party is conquering new fields in dispute

resolution which were traditionally reserved to human neutrals. The fourth party is taught

how to mimic human mediators and arbitrators. Surprisingly often it manages to move

parties towards resolution of their dispute using many of the techniques a “live” mediator

would use, such as compelling the parties to define what the problem is and what their

desired solution would be, reframing and finding common ground. Once such software

grows more sophisticated, arguably, it might replace many human neutrals. Some ODR

mechanisms do not require a human’s involvement to operate even today. SquareTrade,

the ODR provider working with eBay, offers services that parties may utilize without the

aid of a mediator or other SquareTrade personnel, and these self-service tools achieve

over 80% successful resolutions.284 Thus, at least one commentator argued “the most

salient difference between ODR mechanisms is in their level of automation.”285

Automation may be seen as a response to growing volume of online interactions

and disputes. Its benefits include ability to handle increased volume of customer requests,

savings in turnaround time and transaction costs. While the role of automation in a justice

281 Rule, supra note Error: Reference source not found at 59.282 ibid.283 Katsh, Bringing Online, supra note Error: Reference source not found at 286-289.284 Having said that, the vast majority of these cases were relatively very simple. Therefore, except for the simplest problems, live human intervention is still a very important component for effective online communication. SquareTrade relies heavily on highly capable ODR neutrals to help resolve disputes where human involvement is invaluable. Claro Parlade, “Challenges to ODR Implementation in a Developing Country” in: Ethan Katsh and Daewon Choi (eds.), Online Dispute Resolution (ODR): Technology as the “Fourth Party”. Papers and Proceedings of the 2003 United Nations Forum on ODR (2003) , online: <http://www.odr.info/unece2003/pdf/parlade.pdf>. See also Rule at 57. 285 Goodman, supra note Error: Reference source not found (noting that while some websites are fully automated and require no or little human intervention, others involve a neutral third party as a facilitator). Some authors argue that online ADR processes fall into two primary categories: automated processes and neutral-managed processes – for instance: Miriam R. Albert, “E-Buyer Beware: Why Online Auction Fraud Should Be Regulated” (2002) 39 Am. Bus. L.J. 575 at 629.

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system by and large has been quite broadly discussed286, the direct impact of automation

on dispute resolution, and out-of-court methods in particular, has been somehow

overlooked. In the broadest meaning, automation refers to all functions in ODR

procedure that are performed without human assistance.287 A commonly automated

function is that of informing parties of activity in the case: some ODR systems

automatically notify their users of new message or submission by sending them an

email.288 Thiessen and Zeleznikow observed that the challenge lies in providing

automation that is sophisticated and intelligent. According to them, the ideal ODR system

would be fully automated and at the same time able to provide all the functions of a

human neutral.289 Needless to say, such a system would have to be supported by the

ultimate artificial intelligence (“AI”)290 which is now unattainable. Yet many authors

have argued that AI techniques would bring several benefits to legal practice.291 The

possibility of using them in the field of the law, in particular to support legal reasoning

processes, has been considered for at least thirty years.292 As noted by Susskind, despite

growing awareness and interest in the application of AI, and notwithstanding a number of

research projects293, “there has not yet been developed fully operational expert system in

286 See for example: J. Owen Forrester, “The History of the Federal Judiciary’s Automation Program” (1995) 44 Am. U.L. Rev. 1483 (noting that “one does not have to be a futurist to predict correctly that automation tools will overtake and rapidly change traditional methods used by lawyers, judges, and court managers).287 Thiessen and Zeleznikow, supra note Error: Reference source not found.288 ibid.289ibid.290 The term ‘Artificial Intelligence’ (‘AI’) is used here in its basic meaning describing “the ability of a digital computer to perform tasks commonly associated with intelligent beings”, as frequently applied to the projects of developing systems endowed with the intellectual processes characteristic of humans, such as the ability to reason, discover meaning, generalize, or learn from past experience – based on the explanation contained in Encyclopædia Britannica Online – online: < http://www.britannica.com>.291 Dan Hunter, “Commercialising Legal Neural Networks” (1996) 2 JILT, online: <http://elj.warwick.ac.uk/elj/jilt/artifint/2hunter/>.292 The first widely discussed writing on that topic was published by Buchanan and Headrick in 1970: B. Buchanan and T. Headrick, “Some Speculation about Artificial Intelligence and Legal Reasoning” (1970) 23 Stan. L. Rev. at 40-62. In this article they argued that “the time has come for serious interdisciplinary work between lawyers and computer scientists to explore the computer’s potential in law”. In retrospect, we might assess that their proposal was realized to some extent only.293 Susskind counted in the nineties that there had been no more than twenty five sustained research projects launch in this field. They sought to handle with possible AI’s applications to a broad scope of specific legal fields: from principles of German Civil Code (Popp and Schlink’s JUDITH project), decision-making in the process of settlement in civil litigation (Waterman and Peterson’s L.D.S.), to drafting legal documents in general (Sprowl’s A.B.F.) – Richard Susskind, Transforming the law: essays on technology, justice and the legal marketplace (Oxford: Oxford University Press, 2000) at 192.

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law that is of utility to the legal profession.”294 Thus, so far high automation has been

“generally associated with low comprehension […] The only existing ODR systems that

are totally automated are those that mainly deliver information or those that offer a blind-

bidding process for simple single-issue two-party cases.”295

Blind bidding is an ODR method considered appropriate for disputes involving

parties whose interests can be easily quantified (in terms of money, time, etc.).296 Each

party submits an offer over the network, and then a computer without human assistance

compares the offers.297 If the offers are far apart, the process can be repeated through

several rounds. It can be ended with a settlement satisfactory for both sides or neither

side having lost anything since nothing was revealed to the other party or any other

person.298 Therefore, many authors have pointed out that rules on disclosure are as much

a part of blind bidding as is a simple calculation mechanism.299 Blind bidding appears –

as observed by Katsh – “to be almost too simple to be considered any more of a dispute

resolution process than flipping a coin or drawing a card from a deck. Unlike these other

techniques, however, in which the outcome has nothing to do with the needs or interests

of the parties, blind bidding allows parties to reach an agreement, not simply an outcome

or result.”300

Does such technology that hardly differs from flipping a coin or drawing a card

from a deck deserve the name of the fourth party? The concept of the fourth party itself is

still new, and probably – for many readers – not very convincing. Even with the

relatively primitive state of our current technology though, we can see the increasing role

of technology in dispute resolution. SquareTrade alone has mediated approximately two

million disputes so far, more than a million and a half of which never involved a human

other than the disputants. This led at least several commentators to the conclusion that

“there’s a tremendous amount of evidence that there’s a great deal of efficacy in online

294 ibid.295 Thiessen and Zeleznikow, supra note Error: Reference source not found.296 Albert, supra note Error: Reference source not found at 630.297 What is Cybersettle?, online: <http://www.cybersettle.com>.298 Blind bidding could also be accomplished with a human third party who accepts the offers and makes the calculations but the process would be more cumbersome and involvement of human neutral is not necessary in this case.299 Katsh, Bringing Online, supra note Error: Reference source not found at 286-289.300 ibid.

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dispute resolution.”301 Such authors as Thiessen and Zeleznikow expect that one day

ODR systems will “outperform human beings, bringing levels of fairness and efficiency

to ODR and expanding to improved negotiation of all kinds of problems.”302 One might

argue that their optimism is completely unsupported. The academic discussion about the

“computer judge” died down more than fifteen years ago.303 Such intriguing writings as

“Can/Should Computers Replace Judges?”304 by D’Amato or “Machine-Made Justice:

Some Implications”305 by Spengler were published, respectively, in 1977 and 1963.

Today, nobody repeats the question of “what do judges know that we cannot tell a

computer?” Although over twenty years ago AI pioneer McCarthy answered “Nothing”306

to this question, in fact “nothing” has happened to prove that he was right. In this context

the question of whether the fourth party will be ever capable of replacing human neutrals

may sound really naïve to most of us.307

Nonetheless, it appears undisputed that even relatively simple technology can

increase the effectiveness of dispute resolution. Some authors suggest that ODR

technology should remain simple and transparent.308 They claim that it is not technology

but “the people [who] are the guts of any ODR service, and they are where successful

301 “Symposium Review: Computer And High Tech Law Journal Symposium Rules & Borders – Regulating Digital Environments: February 11, 2005: Panel 3 – Ownership In Online Worlds” (2005) 21 Santa Clara Computer & High Tech. L.J. 807 at 833.302 Thiessen and Zeleznikow, supra note Error: Reference source not found.303 Mayer-Schönberger put it in the following way: “Fifteen years ago people were still talking about the automated judge – a computer that would, after being ‘fed’ legal facts, render ‘correct’ decisions. This naïve euphoria is gone. The substantive use of technologies and networks in the legal world has a different focus today” – Viktor Mayer-Schönberger, “The International Lawyer in Times of Cyberspace” in J. Drolshammer and M. Pfeifer, eds., The Internationalization of the Practice of Law (The Hague: Kluwer Law International, 2001) 401 at 407.304 Anthony D’Amato, “Can/Should Computers Replace Judges?” (1977) 5 Georgia Law Review 1277.305 Joseph J. Spengler, “Machine-Made Justice: Some Implications”, in: H. W. Baade, ed., Jurimetrics, (New York: Basic Books, 1963).306 Joseph Weizenbaum, Computer Power and Human Reason: From Judgment to Calculation, (Harmondsworth: Penguin, 1984) at 207.307 Even if it becomes technically possible, we come to another difficult issue: would it be desirable? An investigation of this issue reveals a wide array of social, philosophical, etc., difficulties. On the hand, a computer judge, arbitrator or mediator can potentially have incredible advantages. Besides obvious practical ones measured in terms of time and cost effectiveness, we can identify several some promising points on the field of legal theory. To take an example, if we agree that the ideal position of judge, as a decision maker, is convergent with the ideal of tabula rasa, then a computer judge can be possibly a better judge than any human judge.308 Rule, supra note Error: Reference source not found.

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ODR programs begin and end.”309 Some ODR providers make a mistake when they

consider themselves technology companies first and foremost.310 “Technology is the

medium, not the message”311, and it is only a means to an end, not an end in and of

itself.312 Having said that, the truth is that the means determine the end, and often they

corrupt the end. In fact, there is also no binary choice between “the medium” and “the

message”: “the message” does not exist without “the medium” and vice versa. There is

no doubt that technology is an increasingly important modality in the regulatory

framework of online dispute resolution.

309 ibid. at 229.310 ibid. at 245.311 This is a paraphrase of Marshal McLuhan’s slogan “the medium is the message” by Colin Rule. The original implies that technology, as the medium through which we communicate, can send its own messages, so it is, in a certain sense, independent of its users and social institutions created by them – ibid. at 245 and Marshall McLuhan and Lewis H. Lapham, Understanding media: the extensions of man, (New York: McGraw-Hill, 1964) at 7-22.312 Rule, supra note Error: Reference source not found at 245.

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IV. IMPLICATIONS: PRESENT REALITIES, PRESSING PROBLEMS AND

FUTURE PROSPECTS

The current state of the regulatory framework for online dispute resolution

At the peak of the Internet boom of the late 1990s, it appeared that ODR was

developing at a satisfactory pace without the involvement of government. The easy

availability of high-tech venture capital allowed ODR enterprises to appear and grow

quite rapidly. Both governments and business stakeholders were anxious to foster

marketplace competition. Many ODR providers called for a hands-off approach from

government and argued that ODR services would “take root on their own.”313 Regulations

were kept to a minimum in order to encourage new entrants and greater consumer choice.

Self-regulation initiatives, such as codes of conduct or trustmarks, were growing “slowly

but steadily.”314 E-commerce industry was encouraged to build ODR into business

practices but not required, or overseen, to do so. As reported by the UNCTAD Report,

when the US government convened its first conference on ODR in June 2000 at the

Federal Trade Commission315, it was clear that “it was leaning toward industry self-

regulation.”316 “In the freewheeling spirit of the Internet revolution, self-regulation

seemed the logical course.”317

Somewhat surprisingly, even when the Internet bubble burst, the regulatory

approach to the ODR did not change.318 In 2002, it was – as noted by Rule – “very hands-

off”, and government agencies both in Europe and America “seemed to be content with

self-regulation.”319 It is needless to say that the self-regulation approach has been always 313 UNCTAD, supra note Error: Reference source not found.314 Rule, supra note Error: Reference source not found at 272.315 Department of Commerce, supra note Error: Reference source not found.316 UNCTAD, supra note Error: Reference source not found.317 ibid.318 Having said that, the support for the self-regulation approach was not unlimited. For instance, in 2001 the Federal Trade Commission Roundtable on ADR, E-Commerce and Online Transactions involving business and consumer advocates called for greater government regulation of online ADR to ensure their fairness, effectiveness and compliance with codes of conduct. Similar efforts have been made by other national governments.319 Rule, supra note Error: Reference source not found at 272.

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preferred by business wishing to avoid additional regulation whenever possible. Thus,

while businesses have often supported the application of ODR, especially to B2C

disputes, at the same time they have wanted “government to avoid getting involved.”320

As discussed by Rule, “businesses mostly want to implement ODR programs to shield

them from liability and court proceedings”, for example, “many businesses are interested

in binding arbitration with their consumers and business partners for exactly this reason.

The fear of financial exposure in court is a formidable one. The fear of class action

lawsuits is also formidable.”321

The first doubts regarding the self-regulation approach were raised by consumer

groups having a long history of disagreement with business interests. These doubts arose

when some e-companies suggested that ODR be integrated into their e-commerce

systems as a mandatory step: that is, disputants would have to engage in ODR before

being permitted to go to court.322 Because most consumer groups were “steadfast in their

demand that consumers must retain access to court”323, they expressed their strong

objections to such suggestions. As a result, consumer advocacy groups became willing to

entertain the possibility of government intervention in setting and enforcing new

standards for ODR. Then, not only consumer organizations, but also other not-for-profit

entities, governments and international bodies raised concerns regarding the performance

of ODR providers, particularly in the B2C context.324 The shortcomings had to do with

the lack of transparency in the conduct of ODR providers, the lack of standards for

ensuring the neutrality of providers and neutrals employed by them, the lack of

appropriate complaint mechanisms, and the failure to accommodate cultural and

linguistic differences (these deficiencies are explained in more detail in the next section

of this paper).325

Even when facing these clear deficiencies, ODR stakeholders and policy-makers

did not decide to (or were not able to) take any decisive steps to correct the regulatory 320 ibid. at 273.321 ibid.322 UNCTAD, supra note Error: Reference source not found.323 Rule, supra note Error: Reference source not found at 273.324 Advocacy groups, governmental agencies and multinational organizations have expressed a concern that – as summarized by Rule – “ODR services will be shoddy, biased, and ineffective” – ibid. at 270.325 Orna Rabinovich-Einy, “Balancing the Scales: The Ford-Firestone Case, the Internet, and the Future Dispute Resolution Landscape” (2003-2004) 6 Yale J. L. & Tech 1 [Rabinovich-Einy].

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framework. By and large, their actions were limited to the sphere of norms. Diverse non-

binding and unenforceable standards for ODR service provision have been issued.

Among the organizations that have compiled these standards were the OECD, the G-8,

the European Union, governmental agencies in Canada, Australia, Japan, New Zealand

and the United States, the International Chamber of Commerce, the Better Business

Bureau, the Global Business Dialogue, and the Trans-Atlantic Consumer Dialogue. On

the one hand, it proves that the problem has really existed and attracted a lot of public

attention. On the other hand however, as noted by Rule, “it is easy to get lost in all of

these different standards documents.”326 Their regulatory influence upon ODR practice

appears debatable.

There are several reasons for governments to open the door to more aggressive

regulatory involvement. The hands-off approach, in which the driving force is the power

of the marketplace, has been unsuccessful in regulating online dispute resolution. The

power and dynamics of the ODR market forces are currently weak. The hands-off

approach could be potentially effective if the market had just emerged and many new

players were appearing. This would be also an effective approach for a developed market

where clients do derive benefits from real competition between businesses. Neither of

these is however the ODR market of today. This is a market of insufficient information

and limited client choice. ODR providers experience difficulties getting new cases. E-

companies do not seek to attract more clients by offering them more convenient modes of

dispute resolution.

In their recent book, Ponte and Cavenagh suggested that “e-companies must tread

carefully in their selection of ODR providers. At a minimum, an e-business should

determine if the ODR provider belongs to relevant professional organizations, adheres to

current ADR ethical standards, requires specialized ODR training for its neutrals, and

complies with the ABA Task Force’s Recommended Best Practices.”327 Although

generally plausible, “the minimum” proposed by Ponte and Cavenagh appears somewhat

troublesome, and often hardly achievable. First, there are many ADR/ODR professional

organizations and it may be difficult to find out which one is “relevant”. Second, ADR

ethical standards (again, the question arises which ones are “relevant”) will not always be 326 Rule, supra note Error: Reference source not found at 271.327 Ponte and Cavenagh, supra note Error: Reference source not found at 132.

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fully adequate for ODR. By trying to merely transfer ADR standards to the ODR world,

the role of technology and other unique challenges of ODR may be overlooked. Finally,

while the ABA Task Force’s Recommended Best Practices may appear important in one

way or another to ODR providers in the United States and North America, they are in fact

only one of numerous standards, and remain largely unknown worldwide.

The exclusive reliance on market forces, free competition, and privately-made

norms in the context of regulation of online dispute resolution raises important concerns.

“Dispute resolution” is not a regular product or service. It is debateable whether market

and norms, in the absence of law, are capable of providing adequate incentives to put

ODR programs in place and make them fair and effective.

Major deficiencies of the current ODR regulatory framework

There are numerous issues in online dispute resolution that presently appear

“insufficiently regulated.” As discussed, this state of “insufficient regulation” results not

only from lack of comprehensive ODR law, but also from the weaknesses of the other

modalities of regulation. Certainly, law is not always the best means to regulate. In

cyberspace, like in the physical world, law, market, norms, and architecture all interact to

regulate human behaviour. To take an example, if an ODR provider charges too much for

their services328, such a problem should rather be solved by market than by law. If the

provider ignores clients’ emails about their pricing, likewise, norms seem to be more

appropriate than law. If the provider tries to use a non-existing credit card number, they

will probably fail not because it is forbidden by law, but because a computer system will

not recognize a given number. Finally, when fraudulent charges are made to a client’s

credit card, law must come into play. Thus, law and the other modalities co-regulate the

field of online dispute resolution. Some of the deficiencies of the existing ODR

regulatory framework have been already illustrated in the previous sections of this paper,

this section highlights and explains them in more detail.

Several issues arguably ought to be regulated by law, and no other modality of

regulation seems to be capable of replacing law in these situations. Such an issue is for

instance whether an ODR clause contained in a contract, or increasingly often in a

328 Consumers 2001, supra note Error: Reference source not found at 9.

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website’s terms of use, should be enforceable. This problem cannot be satisfactorily

answered by technology, market, nor any norms other than law. It appears to be the

necessary role of legislative authorities and courts to deal with the problem of ODR

clauses’ enforceability. Likewise, such issues as whether the limitation period should be

suspended while the parties are attempting to resolve their dispute by ODR (and if yes,

under what conditions), the extent of evidential privilege (whether all or some ODR

communications are protected from disclosure in any subsequent proceedings), the

(de-)localization of ODR (e.g., “place of arbitration” has been traditionally needed to

establish a “territorial” link to lex arbitri329), liability of ODR neutrals and ODR

providers, and finally, enforceability of a settlement or award, also seem to inevitably

belong to the domain of law.

It should be noted that some of these issues are somewhat regulated, although

only in a few jurisdictions, and in relation to B2C disputes. In general, in disputes with

consumers, a wide range of consumer protection laws may come into play, and ODR

providers often look to a handful of existing laws concerning B2C offline alternative

dispute resolution and try to guide their conduct based on them.330 This situation is not

satisfactory for at least three major reasons, however. First, repeatedly, all parties suffer

from legal uncertainty. The mantra in this paper is that the growth of, and confidence in,

online dispute resolution are inherently dependant on legal certainty. Second, in the

online settings, the distinction between consumers and businesses becomes vague. When

entering into a standard online agreement with, say, Microsoft, the bargaining power of

small or even medium enterprises is not different from one represented by a consumer.

Arguably, such businesses should be granted wider protection, similar to consumer laws,

when contracting on the Internet. Finally, consumer protection laws are currently

territorially limited and differentiated which stands in stark opposition to the multi-

jurisdictional and “borderless” nature of cyberspace.

Several important issues in the ODR regulatory framework of ODR come down to

the problem of lack of transparency and appropriate information. In this context, not only

329 As observed by Lynch, “an absence of localization is highlighted by the growth of online or cyberspace arbitrations which allow arbitrations conducted via electronic medium to be delocalized with the “virtual arbitrators” and “cybertribunals” having no real physical seat.” – Lynch, supra note Error: Referencesource not found at 391330 Ponte and Cavenagh, supra note Error: Reference source not found at 136.

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law, but all the modalities of regulation should play their roles. At present, many

commentators observe that it is difficult “to get accurate information about ODR and

ODR providers.”331 While most ODR providers disclose information on the services they

offer, inadequate information is given on their governing structure, funding models, fees,

officials and shareholders, and finally, users and results of ODR processes.332 Yet

transparency should be a baseline standard for online dispute resolution. As noted by

Rule, this issue “enters into dispute resolution in two different ways: on the front end,

parties need to understand what they’re getting involved in; […] on the back end, it is

also important to have transparency in ODR processes for outside observers.”333 The

latter category is certainly more problematic given the traditionally confidential nature of

out-of-court dispute resolution. However, it is important to allow outsiders to get a sense

of what mechanisms are being used to increase the overall confidence towards ODR.334

The regulatory framework should ensure that full information about both the

tools, the neutrals, and the service provider in general, etc., is disclosed. This is necessary

to enable Internet users to make truly “informed choices” concerning not only specific

ODR providers, but also websites where they shop online and different options of dispute

resolution. Since the other modalities of regulation presently fail to ensure adequate

standards and incentives, it appears plausible to impose certain minimal disclosure

requirements by law.

For e-companies, in turn, information on applicable dispute resolution procedures

could become an important component of each commercial website. It is debateable to

what extent (if any) that should be enforced by law. Currently, the provisions regarding

dispute resolution are frequently “buried” at the end of the website’s terms and

conditions. Therefore, the majority of the website’s visitors have no idea of what would

happen in case of a dispute. Yet, there is no doubt that the dispute resolution procedure’s

terms should be brought to the users’ attention in an effective fashion. They could be

331 Rule, supra note Error: Reference source not found at 270.332 Consumers 2001, supra note Error: Reference source not found at 10.333 Rule, supra note Error: Reference source not found at 274.334 Rule explains further that “some standards, like the TACD guidelines, go as far as to require that ODR providers report their cases to a publicly accessible central clearinghouse. Many dispute resolution service providers are reluctant to go that far, as they are concerned about the confidentiality of their parties and they do not want to cede control of their data to a central clearinghouse.” – ibid.

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provided at least with an easily accessible hyperlink, or a dispute resolution icon, on the

main page of a given website which would lead directly to the dispute resolution clause.

This would allow potential customers to identify the existence of an ODR policy or

program before making any purchases. In this way, again, one could make a more

informed choice whether to continue to interact with a given website. Such a standard is

not unprecedented: many corporate websites have recently implemented similar changes

in relation to personal data and privacy policies.335 Finally, in an effort to help educate

consumers and other businesses about ODR, e-businesses could provide hyperlinks to

major ODR resource centres that offer objective descriptions of ODR processes and

specific ODR providers and services on their websites.336

Today, lack of complete information on ODR provider’s governing structure,

business connections, etc., often raises doubts relating to the independence of ODR

providers and their stakeholders, as well as the neutrality and impartiality of individual

mediators or arbitrators. The Consumers International 2001 Report has found that most

online ADR sites do not give adequate assurance of impartiality of their services.337 There

is a risk that ODR providers will become too closely tied to business organizations

because the latter are the most important customers of the former. It is needless to say

that while ODR providers should stay focused on the needs of their customers, they

should not get “too close.”338 Thus, a number of authors expressed concerns about

neutrality and fairness of ODR processes. Rule observed that “ODR often encroaches on

legal rights, such as due process.”339 In addition, on the Internet, consumers can easily

trade-off fairness of a dispute resolution procedure for other, primarily economic, values.

The Internet enables online shoppers to look for better prices all around the world. When

they do so, they frequently forget about other aspects of each offer, such as whether and

how a dispute would be handled. Certainly, all the modalities of regulation have their

roles to ensure that ODR processes are fair, impartial and transparent – technology,

335 Such a dispute resolution icon could link to a page that explains the ODR policy, preferably in simple terms – Ponte and Cavenagh, supra note Error: Reference source not found at 124.336 See for example the Conflict Resolution Information Resource (http://www.crinfo.org) and Ponte and Cavenagh, supra note Error: Reference source not found at 125.337 Consumers 2001, supra note Error: Reference source not found at 9-10.338 Rule, supra note Error: Reference source not found at 277.339 ibid. at 270.

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because – as suggested by Thiessen and Zeleznikow – the quality of neutrality can be

improved with automation340; markets, because the fair terms of handling complaints and

dispute resolution may attract more clients; finally, norms and especially law, to protect

the fundamental rights.

Only law is capable of protecting the right to trial, however. ODR programs by

and large are currently neither binding nor mandatory based on law; nonetheless, many

businesses want them to be mandatory, if not by virtue of law, then as a result of other

norms (most often diverse contractual obligations). Consumer groups argue that the

reason why businesses want ODR to be a compulsory stage for online disputes is that “it

provides an additional step in the process that might dissuade some consumers from

escalating their complaint.”341 In addition, ODR programs which are not entirely

voluntary appear problematic in light of the fact that many Internet users still do not have

convenient access to technology or do not have sufficient IT skills. The validity of

mandatory ODR clauses is largely untested and “it is unclear whether or not such pre-

dispute clauses will also find judicial support.”342 In this context, law appears to be the

only modality of regulation that can guarantee that consumers will not lose their ability to

obtain redress in a public forum like a court.

Law should also be an ultimate means to regulate liability of the individuals or

entities responsible for ODR processes. As observed by Rule, so far regulatory

discussions have focused on the administrative organizations, including most importantly

ODR providers.343 Yet, this approach tends to overlook the role played by other ODR

stakeholders. First and foremost, it appears crucially important to set enforceable

standards applicable to all ODR neutrals. While ODR providers usually have brick-and-

mortar offices incorporated in one jurisdiction or another, and might be relatively easily

held accountable for any irregularities, online mediators and arbitrators can work and

340 Thiessen and Zeleznikow, supra note Error: Reference source not found.341 Rule at 273.342 Ponte and Cavenagh, supra note Error: Reference source not found at 120. Although offline businesses and consumers have sought to challenge mandatory pre-dispute ADR clauses in the US courts, the court usually have upheld such clauses unless they were clearly unfair.343 For example, while all the debate about ICANN’s Uniform Domain Name Dispute Resolution Program have focused on the ICANN system, its approved service providers and the forum shopping problem, the concerns about standards for UDRP neutrals have been rarely addressed. This problem is not limited to domain name disputes though.

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travel anywhere in the world, subject to a wide variety of different laws and

jurisdictions.344 Accountability of online neutrals is therefore harder to ensure.345 In

addition, it is easier for them to make mistakes than in ADR, especially, when they use

sophisticated technology.346 Moreover, an ODR process is shaped not only by “live”

participants but also by online architecture and software tools designed by “anonymous”

software engineers. Many rules of ADR practice presume that the process is being run by

a human, and in the world of ODR, they must be reformulated. A central problem is no

longer solely how to combat human neutrals’ tendencies to be inefficient, erratic, or

biased. The problem is getting more complicated: in ODR, inefficiency, errors or bias can

be hidden under nicely crafted computer interface, in the way a program was

constructed.347 Liability for any “errors” in ODR software will be often a multi-faceted

issue. Rule wrote that “having your own technological platform is like owning an

elephant; yes, you own it, but you still have to feed it every day and find a place for it to

sleep at night. And every day the elephant gets a little older.”348 For that reason, many

ODR providers prefer outsourcing ODR technology than building it themselves. Such

ODR technology is often protected by patents349 and copyrights. Providing a clear set of

rules concerning liability for errors and mistakes in ODR processes is difficult, albeit

desirable.

Other technology-related regulatory issues in ODR are data security and

confidentiality. While the former relies primarily on technology and the latter – on law

and norms, in fact they seem closely interrelated. The security of currently utilized ODR

platforms and techniques (and as a result confidentiality of ODR processes as well) raises

some concerns. For example, unencrypted email which is now widely used is extremely

vulnerable to interception. Confidentiality is a key concern in any dispute resolution

process. In the field of ODR, parties need to have full confidentiality guarantees not only

from a neutral but also an ODR provider, and all other persons who can have electronic 344 Rule, supra note Error: Reference source not found at 271.345 Katsh and Rifkin, supra note Error: Reference source not found at 160.346 Even in a very trivial way, Katsh and Rifkin gave and example of an online mediator who accidentally sent a copy of an email to a third party who is unconnected to the case – ibid.347 Rule, supra note Error: Reference source not found at 55.348 ibid. at 245.349 Cybersettle is the holder of US Patent # 6,330,551 for the Computerized Dispute Resolution System and Method – see: online <http://www.cybersettle.com/>.

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access to information the parties do not wish to disclose. Data protection methods,

including encryption, secure servers, or password protocols, must be important

components of ODR programs. Again, some analogies to privacy laws come to mind. It

seems plausible that ODR providers should be required to commit themselves to similar

standards and efforts as those who run personal information databases under privacy

laws. There is consensus among scholars and practitioners that “because of the often

sensitive nature of the information shared in online dispute resolution procedures, system

administrators must put the highest priority on top-level security and data protection.”350

Finally, last but not least, lack of trust, in the context of the Internet sometimes

referred to as e-confidence351, is another consequence of “insufficient regulation” in the

ODR field. Lack of trust is viewed as one of the main obstacles to the continuing growth

of the Internet’s global marketplace in general, and the ODR phenomenon in particular.

These two aspects are closely interrelated: if e-commerce is to reach its full potential,

consumers must have confidence in ODR.352 Even if there are no insuperable legal

obstacles to online arbitration or mediation within the current legal framework353, lack of

legal certainty and public confidence in online dispute resolution hampers the growth of

ODR. While in the traditional environment, trust is earned mostly through a neutral’s

behaviour during the dispute resolution process354, online, the process of building trust

can be redesigned and enriched. It has been argued that it could be “more informational

than behavioural.”355 Building trust is a function of all the modalities of regulation: law,

norms, market and technology are all important.

350 Rule, supra note Error: Reference source not found at 246.351 Building trust is an important component of any dispute resolution process. For many successful e-companies, including SquareTrade, the largest ODR provider, building trust in online relationships has been always seen as the highest priority. – Ponte and Cavenagh, supra note Error: Reference source notfound at 132.352 Teitz, supra note Error: Reference source not found at 993-94.353 Lodder and Zeleznikow, supra note Error: Reference source not found at 298.354 Richard Salem, “Trust in Mediation”, online: <http://www.beyondintractability.org/m/trust mediation.jsp>.355 Katsh, Bringing Online, supra note Error: Reference source not found at 286-289. In the online settings, it is possible to address additional issues which are implicit in the trust building process. Katsh wrote that “questions implicit in the trust building process, such as how it can be guaranteed that communications will be kept confidential, and what experience and expertise does the mediator have, can be responded to online not by verbal assurances but by software that can provide information, and monitor and secure messages.”

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Policy Options

The existing deficiencies of online dispute resolution raise important questions

about the best mode of regulation. There has been a wide divergence in views on future

regulation of ODR.356 Some experts have called for greater government regulation and

adoption of new laws to provide the optimal regulatory framework. Others have opted for

greater use of trustmark programs and other self-regulation mechanisms, or argued that

new international governing bodies need to be established.357 Although the current state

of the regulatory framework for online dispute resolution is considered unsatisfactory, at

this point in time, it is still difficult to predict which trend in ODR regulation will prevail.

Policy makers have three major options.358 First, governments may elect a laissez-

fair approach and permit e-commerce to develop institutions that support a market for

dispute resolution services and permit that market to define the standards for ODR. This

would imply that the current “hands-off” approach is continued. Second, governments

may affirmatively regulate ODR by “traditional” means based on national laws, for

example by accrediting ODR providers and establishing binding and enforceable

standards for ODR services. Between these two extremes, there is a wide range of hybrid

approaches. This paper argues that some of them, generally referred to as “co-

regulation”, are the most appropriate solution.

The first approach is based on the cyber-libertarian governance model according

to which the operation of market forces and minimum government intervention may lead

to the most effective online dispute resolution system.359 Several organizations have

recommended that governments allow more self-regulation to demonstrate its efficacy.

They argued that increased competition will result in a race to excellence in order to

ensure e-confidence and attract more clients. However, as plausibly concluded by Lynch,

“while the cyber-libertarian governance model has a certain appeal in view of a

decentralized mode of governance, it is not rooted in practical reality.”360

356 Ponte and Cavenagh, supra note Error: Reference source not found at 136.357 ibid. at 137.358 See also generally Gibbons, supra note Error: Reference source not found at 5-6.359 Lynch, supra note Error: Reference source not found at 389.360 ibid.

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Thus far market forces have been a weak and ineffective modality of ODR

regulation. The regulatory power of such norms as guidelines and good practices, in the

field of ODR, is also highly disputable at present. Finally, the last modality of regulation,

ODR technology, is increasingly sophisticated and – besides many benefits – brings also

the potential for abuse. Thus, it is hardly possible that in a long run the international

community could afford to tolerate “the risks and uncertainties associated with a

complete withdrawal of national governments from the system.”361 Such a “hands-off”

decentralized system would probably encounter difficulties in guaranteeing the principles

of fairness and due process. The free-standing purely “private” regime of online dispute

resolution, lacking, for instance, any enforcement powers provided by territorial

sovereign authorities, could not work well. Therefore, a de-regulated market for online

dispute resolution without some national government intervention – especially at the

stage of enforcement of settlements or awards – would be deficient and unlikely.362 Self-

regulation alone is not capable of providing a comprehensive solution to regulation of

Internet transactions and dispute resolution.

The second approach is based on the assumption that online dispute resolution

requires greater institutional support which can be provided only by national laws made

and enforced by governments. In terms of public declarations, many governments are

clear on their support for ODR. For example, the European Commission and the US

Federal Trade Commission and Department of Commerce have issued several statements

indicating that online dispute resolution should be the default means of providing redress

in B2C e-commerce. In practice, however, this favourable attitude has been supported by

only a few concrete initiatives. In particular, as noted by Rule, “the government has

stopped short of referring cases to ODR providers.”363

While several experts call for affirmative actions of governments in the field of

ODR, others argue that national laws should not become the main regulatory vehicle for

ODR. Ponte and Cavenagh have observed that “efforts to preserve national sovereignty

and laws collide with the desire to develop uniformity on the Web, to simplify business

361 ibid.362 ibid. at 390.363 Rule, supra note Error: Reference source not found at 272.

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obligations, and to improve the ease of commercial transactions for all parties.”364 The

rapidly evolving technological environment makes it difficult for national legislation “to

keep abreast of the new developments.”365 As a result, given that the tradition of “bottom

up” governance366, unique dynamics and decentralized nature of cyberspace, pose several

challenges for any national government trying to effectively control phenomena which

take place online, diverse forms of international cooperation in the field of ODR are

needed. A mere reliance on national laws could only further complicate the use of ODR.

To be effective, any regulatory scheme for cyberspace communications in general, and

online dispute resolution in particular, must be agreed upon by the international

community, and then implemented with support of several Internet and ODR

stakeholders.

The third multilateral and multifaceted approach to online dispute resolution

seems most appropriate. This model would rely on careful consideration of all the

modalities of regulation and the way they interact with each other to co-regulate ODR. It

would also seek to involve a wide range of stakeholders and mechanisms to ensure the

optimal regulatory scheme for online dispute resolution. This is a pragmatic approach

recognizing that state governments still have an important role to play in regulation of

ODR367, but also taking into account the need to involve different stakeholders, including

ODR providers, ADR organizations368, e-commerce and IT businesses, consumer

advocates369, international organizations and the community of Internet users.

Arguably, such a new regulatory scheme for ODR is needed and ought to be

provided in a multi-step process. Both governments and the other stakeholders must

364 Ponte and Cavenagh, supra note Error: Reference source not found at 137.365 Lynch, supra note Error: Reference source not found at 353.366 US Working Group on Electronic Commerce, “1st Annual Report” (1998), online: <www.doc.gov/ecommerce.pdf>.367 See generally: Schultz, Does Online, supra note Error: Reference source not found at 72 (arguing that ODR requires governmental intervention to develop fully).368 As observed by Rule, the dispute resolution field has been largely absent from the discussions around how ODR systems should work. No ADR organization “has made a strong push into the ODR area.” While the ODR initiatives and standard-setting efforts have been started and run by entrepreneurs, large non-profit organizations, and international institutions, ADR organizations have been surprisingly passive in this area so far – Rule, supra note Error: Reference source not found at 271.369 Consumer advocates generally support the development of online dispute resolution schemes and national and international standards for B2C ODR, although they also argue for retaining the right of redress in national courts – Lynch, supra note Error: Reference source not found at 369.

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engage in an effort to generate international coordination on ODR regulation. It is a trite

observation that while state governments alone might provide for general rules

controlling living together in the real world, they are not able to solve the problems

arising on the Internet without a method for achieving broad international consensus. The

regulatory framework for ODR, like the Internet, by its very nature, transcends political

and territorial boundaries. Thus, it is necessary to find ways in which regulatory policy

could be made operable across nation states. Several issues, such as what exactly this

international arrangement should include, or whether a global ODR clearinghouse or

other institutions need to be established or vested with some powers in the field of ODR,

are open to debate. Suggesting details of the optimal ODR regulatory framework is

beyond the scope and ambition of this paper, although it presents the changing dynamics,

challenges, current deficiencies, and complexity of the ODR regulatory framework that

arguably must be taken into account when drafting any new ODR regulatory scheme.

Once agreed upon by the international community, the ODR regulatory scheme

would be ready to be implemented by individual states. National governments should

maintain – at least for the time being – ultimate authority over the enforcement

mechanisms, the issues of fairness and due process, and the majority of other problems

that are most effectively regulated by law, such as the extent of evidential privilege or

suspension of limitation periods.370

As illustrated throughout this paper, “no size fits the all”, and law is not the best

means of regulation for each and every problem in ODR. The other mechanisms could

also ensure that ODR programs do not go awry. Rules, standards, incentives and

constrains can be supplied and enforced not only by virtue of law, but also by market,

norms and architecture. Depending on how these modalities interact at a given time,

certain powers and responsibilities would be transferred within this uniform and general

framework. Presently, the lack of solid legal framework for ODR is a particularly

significant obstacle for the growth of online dispute resolution. The weaknesses of the

other modalities of regulation exacerbate negative consequences resulting from the lack

of ODR law. As a result, it appears that adoption of internationally harmonized ODR law 370 Gibbons suggested that governments should provide incentives such as safe harbour provisions to encourage the development of processes and procedures that will result in “due process” and “fair play.” Gibbons, supra note Error: Reference source not found at 6 (citing Richard A. Posner, Economic Analysis of Law, 20.3 (4th ed. 1992)).

73

would not hamper the development of market, norms and technology, but rather support

their proper growth.

There is no doubt that future regulation of online dispute resolution depends

largely upon an overall approach to regulating electronic commerce and the Internet. At

present, there is no comprehensive legal regime governing not only dispute resolution on

the Internet, but also electronic commerce transactions and the Internet by and large,

either at the international or domestic level. As observed by Geist, countries around the

world have become engaged in an increasingly tense battle over “Internet governance”

which has quietly simmered for a couple of years, but now appears headed for a

culmination at the last Internet Corporation for Assigned Names and Numbers meeting of

2005 in Vancouver.371 The International Telecommunications Union, a Geneva-based

United Nations agency, is expected to set out a new vision for Internet governance with

the release in July 2005 of the Report of the Working Group on Internet Governance.372 If

the new international governing bodies for the Internet are established, it is arguable that

they should be vested with certain responsibilities also in the field of ODR.

Internationally coordinated changes in law are needed to bring about more legal certainty

which is necessary for the growth of e-commerce and ODR. They are needed to boost

overall confidence in online transactions and to help promote high quality of ODR

services on the Web. It appears unrealistic to close the gap between the need and

potential for effective dispute resolution mechanisms on the Internet and their actual use

without such changes.

It is true that “ODR service providers are not currently regulated for quality.”373

From a broader perspective, the field of online dispute resolution seems to be not

sufficiently regulated. Neither by law, nor by the restrains set by other norms, market or

technology. Given the current weaknesses of the modalities of regulation, online dispute

resolution requires greater institutional and international support.374 It also awaits greater

371 Michael Geist, “The battle for control of the Internet”, 11 July 2005, The Toronto Star.372 The Working Group on Internet Governance, online: <http://www.wgig.org/>.373 Ponte and Cavenagh, supra note Error: Reference source not found at 134.374 American Bar Association's Task Force on Electronic Commerce and Alternative Dispute Resolution, Final Report, Aug. 2002, online: <http://www.law.washington.edu/ABA-eADR/documentation/docs/FinalReport102802.pdf>.

74

education, awareness and legal maturity.375 While it remains to be seen which trend in

ODR regulation will prevail, it must not be overlooked that the development of the

Internet has changed the dynamics of the regulatory environment and “facilitated the

emergence of new institutional mechanisms for rule making.”376 The co-regulation

approach recommended in this paper is different from both traditional state-orientated

models of regulation and self-regulatory systems.377 Arguably, this is the optimal model

for regulation of online dispute resolution under current circumstances.

375 Nicolas de Witt, “Online International Arbitration: Nine Issues Crucial to Its Success” (2001) 12 Am. Rev. Int’l Arb. 441 at 441.376 Lynch, supra note Error: Reference source not found at 397377 Rabinovich-Einy, supra note Error: Reference source not found.

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V. CONCLUSION

Online dispute resolution has its sceptics and its enthusiasts. The sceptics say

given that ODR has not revolutionized dispute resolution yet, it is nothing more than a

passing fad. The enthusiasts see an opportunity to develop new resources to resolve

conflicts more effectively than today and argue that the Internet and ODR are still in a

process of institution building – even if it takes longer than originally assumed – time

will come to develop a global ODR system.

This paper contends that the lack of a spectacular success of online dispute

resolution projects stems from significant flaws of their current regulatory framework.

There is no comprehensive legal regime governing dispute resolution on the Internet, and

as a result online dispute resolution suffers from the lack of legal certainty and public

confidence. The absence of ODR law is exacerbated by the weaknesses of the other

modalities of regulation: market, norms and technology. Arguably, a solid legal

framework is needed to allow for the proper growth of online dispute resolution with its

norms, market and technology.

Over the past decade, Internet law in Canada and many other countries has

evolved significantly with the introduction of new privacy, e-commerce, and copyright

legislation. One constant, however, has been governmental support for a hands-off, self-

regulatory policy approach for online dispute resolution. Given the unsatisfactory effects

of this approach, it is time to re-examine it. While it remains to be seen which trend in

ODR regulation will prevail, it must be kept in mind that the development of the Internet

has changed the dynamics of the regulatory environment. The reasonable policy-making

must rely on careful consideration of all the modalities of regulation. The best, and in fact

the only presently effective solution, is co-regulation, a combination of both private and

national and international mechanisms, working in a coordinated effort to provide the

optimal regulatory framework of online dispute resolution.

76

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